Page 118 - IFR Opportunities in Russian capital markets

CHAPTER07
ifrintelligence reports/Opportunities in: Russian Capital Markets
Mobile phones
Three main players emerged from the 1990s to operate at a national level: VimpelCom, Moscow TeleSystems (MTS) and Megafon. Over the last five years these companies have bought up almost all of the smaller regional players and provide a national service. Over the last few years they have also moved aggressively into the countries of the ‘near abroad’, as Russians refer to the countries of the former Soviet Union, and are significant players in almost all these markets. And since the start of 2006 they have begun to go further afield. VimpleCom's owner, the Alfa Group, bought a stake in Turkey's biggest provider, Turkcell, a deal which is being disputed. Russia's mobile phone companies are hoping to move into markets such as Vietnam and China with the Kremlin's help.
Supermarkets
Organised retail only came into its own in the aftermath of the financial crisis. The competition between the major chains is fierce and has already led to the first big merger in 2006 between two of the leading companies – Perekrestok and Pyaterochka, to create X5 – in an effort to pull clear of their rival companies. With French companies Auchan and Carrefour entering Russia and Wal- Mart poised to follow, there will probably be more deals of this sort ahead and the threat of foreign competition on top of aggressive Russian rivals means mergers are very likely.
Transaction structure
The total dollar value of M&A transactions increased by 76% in 2006 over 2005, while the number of deals increased by 4%, according to Citigroup, making 2006 a record year (see Figure 7.1). In all there were 345 transactions worth $63.5bn, according to latest figures from Ernst & Young. The comparison between these figures and those of Citigroup show the dynamic nature of the M&A market and also the fact that not all deals are reported immediately.
M&A volumes have been doubling almost every year since the economy began to pick up a head of steam at the start of this decade and are now approaching mature levels. M&A deals accounted for 4.5% of GDP in 2005 against the 8–10% of GDP average in industrialised countries, but were worth the equivalent of 6.5% of GDP by the end of 2006, according to Ernst & Young.
The Russian market also became more transparent, as the share of disclosed transactions almost doubled to 57% in 2006, although about half of these were trans-national deals, a growth of 90%. Foreign companies bought US$14.5bn worth of assets in Russia in 2006, or three times more than in 2005. Russian companies slowed a bit, buying only US$9.8bn worth of assets abroad, compared with US$10.3bn in 2005.
Figure 7.1: Russian M&A transactions, 2005, 2006 (US$m)
Value, US$m 40,000
30,000
20,000
10,000
0
Number of deals 285
280
275
270
265
Value (US$m)
Number of transactions
19,398
2005
271
Source: Citigroup
34,081
2006
283
111