02 October 2012

Are Russian IPOs on the up again?

Although worldwide M&A statistics in general continue to make for grim reading, one corner of the globe has so far proven to be fairly active in 2012. The number of Russian companies announcing initial public offerings (IPOs) or reportedly considering listings has been relatively high in the first nine months of the year, most notably the rumoured flotation of mobile phone network MegaFon.

News of the IPO initially surfaced in April of this year, with MA Journal Russia saying the company was considering a quotation in either London or New York, and later reports added MegaFon could float a stake of up to 20 per cent and has appointed advisors to oversee proceedings. Other sources have suggested that a listing could take place in October, and Bloomberg cited people with knowledge of the matter as valuing the deal at around USD 4,000 million. The company has now appealed to the Federal Service for Financial Markets for permission to list on the London Stock Exchange (LSE), although stakes could be sold in both Moscow and London in the form of global depositary receipts.

While this is the most valuable Russian IPO rumour to have emerged so far in 2012, it is by no means the only one. In fact, 23 companies have been reported as considering a listing since the 1st of January. What’s more, four of these have emerged since the beginning of August alone. Of these, NefteTransServis’ possible flotation is the most valuable by a distance. According to Reuters, citing financial market and industry sources, the Moscow-based freight rail transport company intends to list a 20 per cent stake on the London Stock Exchange in the first half of 2013, and is hoping to bring in between USD 300 million and USD 500 million. However, the reports have not shed any light on what proceeds would be used for.

In addition, a number of financial market sources said hospital operator Gruppa Kompanii Mat i Ditya (also known as MD Medical Group) has hired JPMorgan and Deutsche Bank to arrange a 30 per cent flotation valued at USD 150 million, saying completion could occur as early as October. The firm’s chief executive Elena Mladova observed that proceeds would contribute towards the expansion of its network and enable it to capitalise on Russian demand for medical services.

But Russian flotations haven’t only been rumoured so far this year, with five having completed since the beginning of January and another announced in the same time frame. Among these are the IPO in March by experimental development and research business Silikon Russia on the Russian Trading System (RTS), where concrete structure maker Mostokonstruktsiya also floated in May. Others to have completed IPOs this year are wine producer Abrau-Dyurso, wholesaler Blekbern and non-residential property letting business KKS-Grupp. However, none of these firms disclosed how much they raised, so their exact impact on global IPO values cannot be determined.

However, the question is how the results compare with IPO showings by Russian companies in the last few years. 2011 saw a large drop in flotations when compared with the previous year. In 2010, 40 listings were announced worth an aggregate USD 3,531 million. However, this plummeted to 17 deals worth USD 1,270 million last year. Although there are still three months remaining in 2012, we can get an indication of the IPO market by looking at the year’s activity so far, which shows six listings have been announced with an aggregate value of USD 100 million.

In addition, the majority of IPOs in the country are merely at the rumoured stage, and as yet can’t be taken as a sign of an impending recovery. Nevertheless, if all these deals go ahead, Russia may dare to dream and could begin to see positive effects on its results sooner rather than later.

© Zephyr