Page 54 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
Table 3.7: Top IPO performers, 2004–Sept 2006 (US$, %)
IPO price Current price* IPO date Company (US$ p/s) (US$ p/s)
Note: *prices as at September 7, 2006
Source: RTS, Bloomberg, Alfa Bank Research
Table 3.8: Worst IPO performers, 2004–Sept 2006 (US$, %)
IPO price Current price* IPO date Company (US$ p/s) (US$m p/s)
Note: *prices as at September 7, 2006
Source: RTS, Bloomberg, Alfa Bank Research
Table 3.9: IPOs trading below initial price, Sept 2006 (US$, %)
RTS% (same period)
RTS % (same period)
Loss (%)
Performance* (%)
16/11/04 20/07/05 31/05/06 28/04/06 10/05/06
Open Investments Novatek
CTC Media Magnit Cherkizovo Group
49.75 16.75 14.00 27.00 15.25
178.00 257.8 138.8 49.00 192.5 109.6 21.60 54.3 8.8 34.00 25.9 -4.1 14.30 -6.2 -8.7
Performance * (%)
05/12/05 22/03/05 29/10/04 22/04/05 17/11/05
IMS Group 3.30 Khelb Altaya 0.90 Mechel 21.00 Severstal-Auto 15.10 Amtel-Vredestein 11.00
1.90 -42.4
0.78 -13.3 21.10 0.5 18.50 22.5
4.80 -56.4
144.9 135.6 139.4 123.6
56.6
IPO date Company IPO price (US$ p/s) Current price * (US$m p/s)
Note: * prices as at September 7, 2006
Source: RTS, Bloomberg, Alfa Bank Research
Owners’ motivations
14/07/06 10/05/06 07/02/06 25/04/06 22/03/05 13/02/06 05/12/05 17/11/05
Rosneft 7.55 7.51 Cherkizovo Group 15.25 14.30 Comstar UTS 7.25 6.70 Veropharm 28.00 25.00
-0.5 -6.2 -7.6
-10.7 -13.3 -33.8 -42.4 -56.4
Khelb Altaya
Trader Media East
IMS Group
Amtel-Vredestein 11.00 4.8
0.90 0.78 13.00 8.60 3.30 1.90
Why have IPOs now? There are two motives for owners to sell stakes in their companies now. The first is to raise investment capital to continue their fast expansion. For example, in the supermarket sector competition is so fierce for the dwindling market share that owners are willing to forego the anticipated share value appreciation for the ready cash to build more stores today.
December 2005 was a key month for Russian owners, as the RTS crossed the 1,000 milestone for the first time, rising 83% over the year. The following year was the sixth in a row of strong growth and reached a tipping point where cost of equity finance was on a par for the first time with the alternatives such as bank loans of bond issues. With economic growth running at over 6% for five years, everyone is desperate for investment capital.
“There are big opportunities for companies with access to equity capital markets and the cost of equity finance has fallen from the thousands of percent to about 10-11% now versus the 7–8% it costs to borrow or issue bonds,” says Charles Ryan, chairman and CEO of United Financial Group.
“In other words, the difference is small enough to make equity financing an attractive alternative, especially since so many companies are now quite highly leveraged. A lot of sectors here are ripe for consolidation and equity is a powerful weapon in negotiating the terms [of acquisition or merger],” says Ryan.
The second reason is many owners simply feel the fast growth phase is coming to an end and want to cash out. Fears of what will follow after Putin steps down as President in March 2008 are catalysing this desire to secure the huge gains made in recent years.
Analysts estimate that about half of the IPOs in 2005 and 2006 were motivated by owners wanting to monetise the fortunes they had made on paper ahead of the regime change in the Kremlin.
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