Page 27 - bne magazine March 2017 issue

bne March 2017 Companies & Markets I 27
bne:Deal
Russia’s first IPO of 2017 is child’s play as Detsky Mir sells 33% stake
Ben Aris in Berlin
Russia’s iconic toy company Detsky Mir (Children’s World) closed the country’s second-largest IPO in three years, selling one third of its shares for RUB21.1bn (€333mn) on Russia’s Moscow Exchange (Moex), it said on February 8.
The IPO values the company, which specialises in toys and children’s goods, at RUB62.8bn (€991mn), making it the big- gest IPO in the Europe, Middle East and Africa (EMEA) region so far this year and the first major share sale since Western sanctions were slapped on Russia in response to its annexation of Crimea in 2014.
Detsky Mir floated at the bottom of the price range at RUB85 per share when the order book closed in the evening of Febru- ary 6. Credit Suisse, Goldman Sachs and Morgan Stanley were
the joint global coordinators and bookrunners of the offering, with Sberbank CIB and UBS Bank also acting as bookrunners. The underwriters said about 90% of the 33.6% stake sold went to foreign investors, while about 30% of demand came from US investors, around 35% from Europe, more than 25% from the Middle East and Asia, and less than 10% from Russia.
Investors will be watching Detsky Mir’s shares closely as most of the share prices from Russia’s IPOs in recent years are underwater. Notably the IPO of state-owned VTB Bank and Tinkoff Credit Systems, a leading privately owned interbank, are both trading well below their IPO prices.
There was a boom in IPOs in 2006 and 2007, but the number fell off sharply after the 2008 financial crisis struck. In the last three years the only signficant IPOs have been: United Wagon Company, which raised $180mn in April 2015; Moscow Credit Bank, which raised $238mn in July 2015; and oil minor Russ- neft, which raised $500mn in November 2016. Supermarket chain Lenta also raised $225mn with a secondary public offer- ing (SPO) in March 2015.
Detsky Mir is owned by Russian conglomerate AFK Sistema, but the Russia-China Investment Fund (RCIF) and other share-
Detsky Mir's restored flagship store reopened in 2015.
holders, including the management of Sistema and Detsky Mir, all participated in the offering as selling shareholders, the company said in a press release on February 8. “Sistema will retain a majority stake in Detsky Mir, and the others will also all retain a stake post-IPO. No shareholders are fully exiting,” the company said.
Russia’s equivalent of the UK’s Hamleys, Detsky Mir is much loved in Russia. In Soviet-times, queues used to wind around the company’s giant flagship store on Lubyanka Square multiple times (bizarrely also home to the KGB and now the FSB Federal Security Service) in the run-up to New Year’s Eve. Parents would queue for days to buy presents for their children. Today, the recently restored building is an Aladdin’s Cave of goodies,
“The company plans to more than double the number of branches in the chain”
though ownership of the building itself was transferred to state- owned lender VTB in 2008 because it was collateral on a debt belonging to Hals Development, another Sistema daughter com- pany, that had gone bad. As part of the deal, Sistema retained ownership of the Detsky Mir brand and the growing network of Detsky Mir stores that have spread out over Russia.
The company plans to more than double the number of branches in the chain; it opened 200 stores in the last two years and plans another 250 new stores in the next three years to bring the total to over 700.
In the last two years revenues have increased by just under a third and profit per square metre has been rising steadily as management techniques improve. Indeed, the same story is
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