The Wall Street Journal-20080122-Russia-s IPO Frenzy May Face a Test Now
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Russia's IPO Frenzy May Face a Test Now
MOSCOW -- Russian companies are hoping to attract record funds through global initial public offerings this year. But that doesn't mean investors should oblige all comers.
Indeed, investors are pulling away from Russian blue chips -- to say nothing of market newcomers. Russia's RTS stock index slid 7.4% yesterday to 1999.83, amid a global selloff that pushed the blue-chip benchmark to a close below 2000 for the first time since September. The index rose 19% last year but is down 13% so far this year.
Whether the tumult will spill over to the IPO market remains to be seen, though investment bank Troika Dialog says Russian deals could reach $50 billion this year. That would be nearly a 20% jump from last year's $42 billion, up itself sharply from the previous year's $17 billion, as banks and real-estate developers in particular sold shares in Moscow and London.
Perhaps the year's most anticipated offering: aluminum producer United Co. Rusal, which is weighing a global IPO of as much as $9 billion. Big listings tend to be Moscow-London placements, with Russian law requiring that at least a third be sold domestically. Other planned IPOs this year include mobile-phone retailer Euroset, fast-growing lender Gazprombank and independent natural-gas producer Itera Holding.
Market participants say many of last year's placements were sold at lofty values, with several failing to deliver so far on promises of growth. Many are languishing well below their offer prices. And some sectors now look overcrowded, leaving investors pining for something new and exciting.
"Some [IPOs] were priced a little too expensively last year, so now it will be first of all about quality and the question of price," says Johan Ekstrom, a portfolio manager at Alfa Capital Partners, which manages $1.3 billion in funds.
Deals sold at aggressive forward multiples have often fared poorly in post-IPO trading. Indeed, only 30% of last year's listings managed to outperform the RTS index, with laggards like technology company Sitronics, property developer AFI Development and metal producer Chelyabinsk Zinc by January down 61%, 43% and 50%, respectively, Moscow-based Troika says.
"The message for 2008 must be clear," Troika strategist Kingsmill Bond wrote in a report this month. "Unless companies become less aggressive with listing prices, investors should make their choices carefully."
Investors also seem tired of the seemingly endless pipeline of deals from sectors such as real estate, which last year sold more than $5 billion in new stock, including $1.85 billion by Moscow-based PIK Group. Indeed, that sector's most recent planned placement, Teorema Holdings, was pulled at the last minute in December as demand for property developers waned. The company hasn't detailed new plans for raising capital.
Eric Kraus, a Russia-focused investor whose Nikitsky Russia fund manages $25 million in assets, says he is attracted to companies that operate in areas not currently open to stock investors. "I'd be looking for niche players in retail and business services and companies involved in the reindustrialization of Russia," he says, citing electronics retailer M.video as an example.
That IPO listed in Moscow in November and rose by as much as 8% before the global selloff.
Mobile-phone retailer Euroset, aiming to raise as much as $500 million, may fit investors' desire for variety. So may Gazprombank, a full-service bank 42% owned by Gazprom. The Russian gas monopoly plans to sell as much as 20% of its stake, hoping to get a valuation for the bank of about $8 billion.
