IXSP- New Russian Exchange is Under Way

THIS POST WAS ORIGINALLY PUBLISHED JULY 26, 2007

IXSP- New Russian Exchange is Under Way

I posted in March this year the announcement by OMX (STO:OMX) of establishment of the IXSP – a new Russian stock exchange that is targeted towards SMEs. It seems that the process is going on. Now the IXSP has its own Web-site – a very simple one, listing major ideas that the promoters are planning to execute.

Speaking of the promoters – they are:
- Stock Exchange Saint-Petersburg (SPBEX), the 3rd largest exchange in Russia.
- OMX - The Nordic Exchange
- RX group of international investors focused on Russia

As the first visible practical step, the IXSP started this week mailing proposals to Russian brokers to sign what is named “Preliminary Agreement” which, according to the mail is the requirement of the Russian Federal Financial Market Services (FFMS) for license application. As the marketing move the mail claims that OMX is already “a member of NASDAQ Group” – I think that is done to attract more brokers as there is no any official NASDAQ-OMX Group sign on respective web-sites. I believe that there is some delay in registration - the IXSP officials earlier announced that they expected to get the FFMS approval by the end of July – the letter asks the brokers to reply by August 7th. Another delay made be the result of difficulties to find a suitable clearing company. This month the press reported that RTS declined the request from IXSP to act as the clearing entity.

The Web-site states among other things that “to prepare for an IPО on IXSP is a fast and cost effective manner unlike on the foreign exchanges”. This is interesting language and I feel that the idea of “fast and cost effective manner” may in some cases lead to not very good results.

Generally speaking the IXSP effort is really good and serve the Russian stock market exceptionally well. But all these activities need to be done in a very cautious way. It had been only about four months since inception of the Closed Joint-Stock Company International Stock Exchange “Saint-Petersburg”. In my understanding it is really tough job to administer all issues in such a short time frame. Of course OMX and NASDAQ may bring a lot of experience, but what about listing agents/NOMADs ? Will Western investors like “fast and cost effective manner unlike on the foreign exchanges” ?

Anyways, everyone is watching the developments and we all hope that they will serve for the better.

Russian IPOs – review of 22nd Week of 2007

THIS POST WAS ORIGINALLY PUBLISHED JUNE 03, 2007

Russian IPOs – review of 22nd Week of 2007

Russian Stock Market Booms

Alexy Kudrin, Russian Finance Minister, speaking at the Duma hearings noted that the Russian stock market is rapidly moving ahead. Capitalization of Russian companies is over $ 1 trillion; and Russia is No.13 in the world as to market capitalization. About 70 companies are planning IPOs this year. This week was historic for RTS. For the first time there was transaction of its equity on RTS. Although it was the only one – 100 shares at the price of $300 each – it showed the company’s market cap – about $ 480 million.

Deutsche Boerse Enters the Race

The first representation office for the foreign stock exchange was opened this week in Moscow. Deutsche Boerse set up services of events in Moscow to commemorate this opening with a big crowd of Germans that included the Mayor of Frankfurt, top managers of Deutsche Boerse Group and some big German banks. One of the goals is expansion of service for a growing number of local customers and to maintain contact with Russian authorities and capital market institutions. The German financial institutions are very visible in Russia (as I mentioned in my last post) and Deutsche Boerse did sign MOU with MICEX last year. Russian press noted that by enhancing its presence in Moscow Deutsche Boerse is expected to provide competition to Russian stock market, and LSE. There are currently 56 Russian companies listed at the exchange, and one of the officials told the press that Deutsche Boerse is now in discussions on IPOs with some companies from oil and gas, pharmacy, energy, innovation technology and biotechnology sectors. Arrival of Deutsche Boerse is at interesting time here. We are all closely watching the story of NASDAQ/OMX and their entrance to Russia through IXSP. Another issue is the tightening to LSE’s listing rules. So, while these things are developing, Deutsche Boerse is already in Moscow. One of the notable facts that the KOMMERSANT DAILY published a big review “IPO Breakthrough // Western Traders Begin Jockeying for Russian Issuers” that, I guess, is worth reading. However, this analysis fails to include some other players that are active here too: Euronext, Hong Kong Exchanges, Singapore.

ROSTELECOM – NYSE Delisting

One of the most discussed issues this week was the intention of ROSTELECOM to delist its ADRs from NYSE. This is the second Russian company (the first was TATNEFT) to delist and according to the company’s spokesman, the decision is to be made this month. There are several reasons to this decision, but the analysts point to two major ones:

After liberalization of the Russian Telecommunications Market ROSTELECOM is faced with the necessity of thorough audit of its all structure up to the end-user companies. This is the result of Sarbanes-Oxley Act (SOA) and sure enough brings a good deal of added costs. (One of the KOMMERSAND DAILY’s newsmen wrote this week that during the Russian Corporate Governmamnce Conference in the USA last May Paul Sarbanes was very cheerful and happy waiving with the copy of SOA pages – Russian companies are not happy at all).

The other reason is that there are virtually no ROSTELECOM’s ADRs trading on NYSE. According to the company’s press service there are about 5.2% of company’s equity trading. In the recent year investment funds bought about 35% of the company’s stock; major trading transactions are on MICEX.

However, other Russian telecoms that are present at NYSE have no intentions to delist.

Investing in Russian IT Sector

In the past months we do feel that there is an increasing sentiment towards Russian venture financing. Der Spiegel printed a report “Tech Startups Come of Age”, another announcement was that the Luxembourgian venture fund Mangrove Capital Partners and the Russian ABRT are announcing a joint investment program in Russian IT startup companies. And this week I had an extensive discussion with the Chief of Business Week Moscow Bureau about financing in Russian venture companies. As I mentioned earlier FINAM INVESTMENT COMPANY is offering some Russian IT assets on MICEX. We are talking about selling equity stakes of Finam-IT mutual fund. In fact we are not so much looking for the money, rather to test waters with investment community. As Demosthenes, the famous Greek statesman said: “Small opportunities are often the beginning of great enterprises.”

One interesting observation about investors’ attitude. We are now in a very active stage of our road-show (in very close collaboration with MICEX – we are the first issuer to be listed in its Innovative and Growth Sector). There is a strong differentiation among the investor community. Investors that are present in Russia are really enthusiastic and we have a good response. However, here is very limited interest from groups in London, and sometimes I got rather rude replies when I introduced myself as a Russian. Next week we are in London, and we will try to talk to some people in person and see any interest. I discussed this with a top manager of Renaissance Capital and he told me that these people are really unaware of what is going on in Russia right now and they do miss opportunity. When they will realize it – it is gone.

Russian Fuel & Energy Commodity Exchange

It is expected that at the XI Saint Petersburg International Economic Forum an MOU with NYMEX shall be signed to establish a Russian Fuel & Energy Commodity Exchange. This shall ne a non-commercial partnership that will be involved in trading of the Russian oil. It is expected that by the end of the year the first REBCO oil trading will take place. The Exchange is being created under the auspices of Minister of Economic Development and Trade of the Russian Federation and Central Bank of Russia.

NISSAN and GM to Open Plants in St.Petersburg Area

It was announced that Nissan is planning to commence operations of its plan in Russia by the end of 2009. This is continuation of an earlier signed program; initially only one model shall be assembled for sales in Russia, but some export options are being considered too. General Motors will start operation of its third plant in November 2008 ; its $115 million worth plant will produce the Chevrolet Captiva sports utility vehicles and a yet-to-be-named compact car from October 2008, with total annual capacity of 60,000.

New IPO Candidates

• CIT Finance Bank – MICEX listing next summer
• TransCreditBank – IPO within 2007-2010
• Bank “Saint Petersburg” – possible Russian IPO within a year.
• Corbina Telecom - up to 25% of its stock through an IPO in Moscow, London or New York in late 2008.
• Kaspersky Lab – possible IPO within two years
• North West Oil Group – possible IPO on NASDAQ, AMEX or AIM
• Conversbank Financial Group – its member bank INVESTBANK is planning IPO in neaqrest years
• POLYUS GEOLOGORAZVEDKA, of POLYUZ GOLD – a newly established company will be preparing for IPO
• The Rosweb group of companies – IPO at the end of 2008.
• United Aircraft Building Corporation – IPO in 2009-2010

The List of Latest Russian IPOs

	Exchange	Currency	IPO Date	Price at date of IPO	Price as of May 31, 2007	Change
RTM	RTS	USD	05/22/07	2.300	2.380	+3.48
DIXIE Grp.	RTS	USD	05/18/07	14.400	14.300	-0.69
VTB additional	MICEX	RUR	05/14/07	0.136	0.145	+6.47
PHARMSTANDART	RTS	USD	05/03/07	58.200	63.570	+9.54
NUTRINVESTHOLDING	RTS	USD	04/27/07	53.000	49.250	-7.08
VOLGA GAS	AIM	GBP	04/25/07	299.000	300.000	+0.33
SBERBANK	MICEX	RUR	02/22/07	89,0000	91,800	+3.15
INTEGRA (GDRs)	LSE	USD	02/21/07	16.755	18.250	+8.96
POLYMETALL	LSE	USD	02/07/07	7.750	5.750	-25.81
SITRONCS (GDRs)	LSE	USD	02/07/07	12.00	8.400	-30.00

Source: Business & Financial Markets