Upheaval of World’s IPOs and RussiaFinancial Times of London notes
that this year we have seen a dramatic increase of initial public
offerings by emerging-market companies. So far during the fist five
months of 2007 the raised money represents half of the volume for all of
2006. There
were 268 emerging market IPOs, which in total raised $53.8 billion. That compares with this time last year when 184 IPOs had raised $25.6 billion. The paper cites three reasons:
(i) ample liquidity in the financial system,
(ii) a strong appetite for risk among investors;
(iii) growing demand for new equity from fast-growing companies.
It is really amazing – just in nine days three biggest IPOs have taken place:
Russian VTB with $ 8 billion raised; the $1.85 billion offering by
Halkbank, Turkey; and the $1.4bn flotation of
Russia's AFI Development.Russia is planning to have many more public companies in the nearest future. Alexander Zhukov, Deputy Prime Minister of the Russian Government, stated that
about 170 Russian SMEs are mulling IPOs. He was speaking at the Russian-American round table meeting in Moscow. And on May 25 Finance Minister
Mr. Kudrin spoke about
70 companies in the nearest future.
In the view of this news, it is appropriate to note
a small news item published by FINANCE magazine this week with a meaningful title:
“IPO Evolved to a Rather Sound Way to Cash Out”.
The author thinks that way back in 2003-2005 the Russian assets were
priced rather cheap. So, at that time the owners were reluctant to give
away part of the business. But in 2006 the businessmen understood the
price that the market was ready to pay.
And this price was way above their anticipations. Thus, IPOs surfaced as the best way to cash out. As an example
PIK construction company is cited. The owners valued the company at $ 1 billion at the end of 2005, now
Deutsche Bank, Morgan Stanley and
Nomura International
collectively think that it is worth $11-14 billion. Even though the
owners would lower the price corridor during upcoming placement, this is
still well over their expectations. And AFI’s IPO is a very good
example.
Russian Economy and Stock MarketThere
had been a qualitative growth of the Russian economy that opens new
possibilities for investments. This point of view was expressed by the
Russian Minister for Economic Development and Trade
German Gref, who made a speech at the annual council of EBRD governors in Kazan.
Now the economy shifted from dependence on accelerated production of raw materials.
Most of the sectors of the Russian economy are developing efficiently
enough. As an example he instanced the development of the stock market.
This
week the MICEX released some data that correlate with Mr. Gref’s
statement. It still remains the major Russian stock exchange (in 2006 MICEX had about 90% of turnover of all Russian stock market) and it is appropriate to assess the entire domestic market by MICEX’ performance.
In one year trading volumes increased by 3.3 times, investor base increased by 51%, with 48% increase of private investors.As of May 1, 2007:- 288 shares of 190 issuers are trading
- 583 bonds of 417 issuers are trading
There
were a lot of speculations last year that there is a lack of private
investors in Russia. Here is the data that shows a drastic increase just
in two years.
At the same time there is a visible shift from trading of Russian ADRS from abroad to Russia. Thus turnover of Russian ADRs on MICEX is 1.3 times of IOB LSE’s turnover. That shows that world investor community is looking on Russia, as one of the financial hubs of the world.
Oleg Vyugin in PlaceThis week the intrigue with Oleg Vyugin, former head of Russia's FFMS, ended with the
announcement that he will become chairman of MDM Bank.
After Mr. Vyugin’s resignation on May 10 there were wide speculations
that he is going to join Goldman Sachs. However, the press reported that
MDM bank suggested more favorite compensation package. MDM Bank is
rated among Russia's top 15 banks by assets. Even before Mr. Vyugin was
officially approved by the bank’s Board, he met with reporters May 24
and noted that the Russian stock market may collapse by the end of the
year, fix all revenues and then rise again. In Mr. Vyugin’s view this is
a positive development, similar to the one that was last summer, when
after market’s fall, more investors arrived. He also stated that the
Russian stock market is unstable since Februarys this year and this
strongly scares investors off. Latest IPOs of Sberbank and VTB add more
instability to the market.
Investment OpportunitiesAirports. Kommersant Daily reports that the
Russian Aviation Agency
drafted a strategy for development of airport infrastructure. According
to the document Russia will have 121 major airports and 12 of them
would be international transit points. Each of international hubs will
host its own airline. It is estimated that by 2015 about
820 billion rubles
would be invested – 64% shall come from federal, 33% from regional
authorities, and the rest from private/government investor entities.
Timber Industry.
The Russian government is discussing the plans to introduce large
benefits to investors in timber industry. This due to the fact that
timber supplies exceed needs of timber producers by one-third. On the
annual basis the forest increases by 920 cubic meters, and only 186
cubic meters are processed. The key question in discussion is that
investment projects worth more than 5 billion rubles would get forest
sections without auctions and pay 50% of the rent or even no rent at all
EBRD Russian ExpansionAs
the result of the mentioned above meeting in Kazan the European Bank
for Reconstruction and Development (EBRD) is going to open several
offices in Russia and also expand its operations including Far East in
its sphere of interests. In another development, it was announced that
EBRD acquired a blocking state in SKB BANK that is located in
Yekaterinburg in Siberia.
Jack Welch and Russian BusinessmenI
reported earlier on the meeting of Skolkovo Moscow Business school
audience with Jack Welch, former CEO of General Electric. This meeting
was well publicized in Russian mass media and attracted also prominent
Russian businessmen. Interesting to note that the meeting was held in
just restored residence of the Russian BOYAR (court nobility) where Ivan
the Terrible was receiving the reports of his noblemen and often
executed them after the session. Mr. Welch told that the key to running a
successful company was leadership, transparency, vision -- and beer.
This was a Q&A session where the present listeners were able to ask
any questions they like. "Russia, with its incredible wealth right now,
the only thing it could do wrong is not use that wealth to expand
globally," said Mr. Welch. He also reminded the well-known 20-70-10
ratio regarding personnel management, spoke on M&A and reverse
mergers. One of the things that amused the audience was his statement
that it is imperative to celebrate the victories of staff and to show
appreciation. "In my early days, I'd bring a keg of beer in every Friday
night".
Advent of Church's ChickenChurch's Chicken
- a U.S. chain of fast food restaurants specializing in fried chicken
is coming to Russia. As it is usual for the company in some countries it
will open the restaurants under the TEXAS CHICKEN brand. The first
outlet will start operations in Moscow in August, the second one – in
September in St.Petersburg. Church's Chicken program envisions opening
30 restaurants within 3 years with investments of $ 20 million. Experts
believe that to be successful the company has to hire quality Russian
management; otherwise it may follow unsuccessful way of Subway chain that is struggling to conquer Russian market since 1994.
