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 26th Week of 2007.

THIS POST WAS ORIGINALLY PUBLISHED JUNE 30, 2007

Russian IPOs – Review of 26th Week of 2007. 

Is Russia Going to Help US Economy?“The next globalization battle lurks over the horizon, but you can already guess its contours. It will be shaped by two revolutions in finance and business: the growth of vast government-controlled investment funds abroad and the muddled progress toward shareholder democracy in this country.” This is a piece of Washington Post “The Next Globalization Backlash. Wait Till the Kremlin Starts Buying Our Stocks” by Sebastian Mallaby (June 25). While this examines all the issues related to sovereign funds, it is worth to note this months’ trip to Moscow by Treasury Deputy Secretary Robert M. Kimmitt. Little is known on the results – the only brief interview was published by RBC-Daily June 25. Basically all discussions were centered on the Stabilization Fund of the Russian Federation and possible investments into US economy. As of June 1 the Fund has $ 116.8 billion and in 2008 it will be spilt in two: the Reserve Fund and the Fund of Future Generations. It is widely assumed here in Russia that both Funds should invest outside the country. Mr. Kimmitt in his statements expressed the idea that the US economy is a good target for Russian investments. As you may read in Mr. Mallaby’s article, the sovereign funds are now abandoning their long time strategy of investing in US Treasury bills and turning to investing in companies (SIC! - Blackstone Group (NYSE:BX) - China). Was it the issue that Secretary Kimmitt discussed in Moscow ?

Russia – Strong Bank Assets
Russian Bank assets grew 11.1% to RUR15.599 trillion (approx. $599.11 billion) in Q1 2007, the Bank of Russia announced this week. The aggregate capital of lending agencies rose 19.3% to RUR2.019 trillion (approx. $77.74billion), boosted by the IPO launched by Sberbank (RTC:SBER) of Russia in Q1. The number of credit institutions boasting a capital upward of EUR 5 million in terms of rubles reached 59.2% of the total number of lending agencies which operated in Russia as of April 1, 2007, up from 56.9% as of January 1, 2007.

And More Private Wealth in Russia

This week financial services group Capgemini and Merrill Lynch (NYSE: MER) released “WORLD RICH REPORT 2007” that says that that number of millionaires in the world increased by 8.3% in 2006, with about 9.5% million individuals now estimated to have more than a million dollars in financial assets. The club of “High Net Worth Individuals” (HNWIs) expanded more in 2006 (11.4% over 2005) with Singapore, India, Indonesia and Russia producing the greatest number of new millionaires. Regarding Russia here is a graph form the report.

OMX and Russia

OMX (NYSE:OMX) is stepping up its activities associated with Russia. This week two events shape the news about the stock exchange. Trading in EnergyO Solutions Russia AB (“EOS”) was commenced at First North, OMX’s alternative investment market. This is a new investment company that just a few months ago started its operations and has in its portfolio assets of Russian electricity companies. The prospectus of the company gives a good overview of the sector and its current situation.

The second event was the “Dual IPO in Moscow and Stockholm for mid-cap Russian companies” conference that was held in St.Petersburg with participation of the Swedish Embassy. Unfortunately I learned about it too late to attend but from advertising materials I understand that it was a quality presentation of possibilities for Russian companies.

Martha Stewart Loves Russia
Martha Stewart, the founder of Martha Stewart Living Omnimedia Inc. (NYSE:MSO), is very close to launching her Martha Stewart Living magazine in Russia. This week RBC Daily reported that several market players received proposals on cooperation with her company. Russian experts believe that this effort might be successful, but Ms Stewart is not well known to the Russian audience. However, if she would be able to attract to the project some Russian celebrity – that might add more popularity. Stewart was highlighted in Russian press in April this year when she came to the space town of Baikonur to say goodbye to Charles Simonyi, a software engineer and developer of Microsoft Word who paid between $20 million and $25 million for a 13-day trip to the space station.
New IPO Candidates

• Transaero Air carrier – as the first step to the planned IPO closed a private placement deal with the sale of 4% of its equity.
• Technosila electronics retail chain – as the first step for planned IPO issued CLNs for $ 100,000
• Inter RAO UES, Russia's electricity import and export operator – IPO in 2008
• Kamaz (RTS: KMAZ) – possible IPO for $300 million in the second half of 2008
• ST Group Region investment construction company – LSE IPO in MaY 2008 with the hope to raise $ 1 billion
• Irkutskenergo, one of the largest power generating companies – IPO in 2008
• Neloaks gold mining company – possible IPO on AIM this autumn
• KuibyshevAzot, a chemical company – IPO at the beginning of 2008
• ALMAZ-ANTEY, a leading vendor of air defense systems – IPO somewhere in 2009-2010

 

 

Russian IPOs – Review of 19th Week of 2007

THIS POST WAS ORIGINALLY PUBLISHED MAY 13, 2007

Russian IPOs – Review of 19th Week of 2007

Russia's Perspectives by Morgan Stanley
Dow Jones this week published a news item (Emerging-markets Fund Managers See Rebound For Russia, China ) about report by Morgan Stanley Capital International on emerging markets. While noticing that China and Russia have delivered lackluster stock market returns this year, the report states that:

- Russia faces political risk and depends heavily on oil and gas prices, but it's generally considered the cheapest of the BRIC markets. Russia has better long-term growth prospects than most other emerging markets and should outperform in the next 12 months.

- The country is using oil and gas profits to put money into improving infrastructure and financial systems

Record Trading Volumes on MICEXRussian stock market continues to gain its momentum. Just recently the trading volume on the MICEX stepped over the psychological barrier of $ 10 billion and it going on further and further. Last week (May 4th) there was a new breaking record of trading - $ 14.506 billion. Experts note that this was due to investors’ activities prior to the VTB IPO. Turns out that technically the stock exchange was not expecting such overload and over the last month there were 4 hardware and software glitches that resulted in suspension of trading. Some market players estimate that by the end of the year we may see 40% increase of MICEX trading and another psychological barrier of $ 20 billion.

Investment Perspectives - Another HorizonsA few weeks ago I wrote about new wave of privatization and its affect on investment business. This week we learned that the government included into privatization lists another set of assets that may cater for investors’ appetite. These are: KamAZ, SG-Trans, MiG Aircraft Construction Corp. The latter envisions initial turning it into a joint stock company. Then, together with Sukhoi Co., MiG will merge into United Aircraft Construction Corporation. The additional privatization program also sets forth ten aircraft repair plants.Different aspect is associated with the construction boom. Moscow City government has approved the general plan for hotels construction in the city. As many as 353 hotels capable of hosting 118,000 will emerge in Russia’s capital in four years. And probably by the end of 2010 Moscow will have 556 hotels instead of the current 203. In view of announced figures, Moscow will have a new hotel each fortnight. This I guess will be a definite reason for more IPOs and private placements in construction and developers’ sector.

And Another News from Air Carrier SectorAs I wrote earlier, the Russian State capitalism has an interesting new form that combines government and private ownership. This week there is another example in this field: five Russian Federation-based airlines which currently co-operate under an alliance known as AiRUnion are set to have common ownership as a joint stock company also named AiRUnion. On 2 May 2007, President Putin, signed a decree on the establishment of the company. The ownership structure will see the Russian Federation owning 45% of the holding company and private investors the remaining 55%. Initially the AiRUnion alliance was created in late 2004 by KrasAir and includes Domodedovo Airlines, KrasAir, Omskavia, Samara Airlines and Sibaviatrans. The combined new holding will have a fleet of more than 70 aircraft. AirUnion is supposed to assist in development of Hungarian airline Malev, itself recently privatized and sold to AirBridge Zrt a Hungarian company backed by KrasAir.

OMX is in the News Again…
OMX goes on with their aggressive expansion. This week they added new dimension to it with the press release about new 2007 initiative – expansion of First North to Baltic region. First North is an alternative market created by OMX, and has already been launched in Denmark (2005), Sweden (2006), Iceland (2007) and Finland (2007). Claiming that First North is one of the fastest growing alternative markets in Europe, the press release states that First North will be launched during 2007 in the Baltic countries. The stock exchanges of Tallinn, Riga and Vilnius are currently adjusting their listing rules and are establishing their Certified Advisers (analogues to NOMADs). Well, this is another suggestion in the growing number of junior markets. Statistics show that Q1 2007 (7 IPOs with € 15 million raised – that places it #4 among European peers) was relatively modest for First North and World Federation’s of Stock Exchanges (WFE) data does not list Tallinn, Riga and Vilnius stocks exchanges as the prominent ones, but we had seen some IPOs there too.

RAO UES IPO Plans – Chubais
Institutional Investor magazine published an interview with Anatoly Chubais who is in charge of Unified Energy System of Russia. I guess it is worth reading, and here are just two points from it:
- “Whatever new political cycle comes in 2007­-2008, and whoever becomes president, the country will still need light and heat. The new leader would have to be a complete lunatic to wreck this process of investment. Besides, I don't anticipate any big political disturbances connected with the coming presidential elections. “- “In the fall we conducted the IPO of generating company OGK-5, and that demonstrated the practicality of our logic. The IPO was oversubscribed ten times, and the company's capitalization has risen 40 percent since then. For the next stage we are looking at about 17 IPOs, raising closer to $15 billion than $10 billion. If market demand begins to fall off, naturally we will delay to some extent. Some of the IPOs will end with investors owning more than 50 percent; some will require a capital increase later. “

European Venture CapitalAs continuation of my previous post on investments in venture capital, just a few points from the quarterly European Venture Capital Report released by Dow Jones VentureOne and Ernst & Young. The IT sector had the most significant upturn of any industry in the first quarter. A total of €550.2m was invested in 133 technology deals. The software and information services segments showed the most activity for the sector. Software deals increased by 20 per cent over the same period a year ago to 73, and investment increased 11 per cent to €222.5m. Deal flow in the information services segment increased 131 per cent to 30 deals, and capital increased more than two-fold to €114.7m. The emerging interest in Web 2.0 technology seems to be fueling this growth in European technology investments.