Page 56 - IFR Opportunities in Russian capital markets

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ifrintelligence reports/Opportunities in: Russian Capital Markets
Table 3.11: Proposed IPOs, 2007 (US$m)
Companies that are currently in the process of an IPO to be completed in early February:
GV Gold
Sitronics
Polimetall
Companies that have announced their intention to raise, but which have yet to start the formal process: MMK US$1.6bn
Companies that announced their ‘plan’ to issue in 2007 but have not indicated any timeframe:
EMALyans (power equipment) RESO-GARANTIYA (third largest insurer) Rosneft
Source: Alfa Bank
Impact on liquidity
US$100m US$100m and 150m May ‘at some point’ sell an additional 25% of its equity by way of public issue
US$200m US$500m US$500m
The heavy IPO schedule also means that liquidity is tightening and some investors will have to sell their stakes in other companies if they want to buy into the new issues.
The two big IPOs so far – Rosneft and Sberbank – had little impact on liquidity as the Kremlin fluffed the marketing of both issues. Rosneft was dogged by the additional problems raised by Yukos' former owners threatening to hound the company with legal actions: Rosneft's main production subsidiary is Yuganskneftegaz, which it won at a controversial bankruptcy auction in December 2004 from the now defunct Yukos. Shareholders in Yukos claim the state illegally appropriated the subsidiary and the threat of legal action was enough to dissuade most interna- tional portfolio investors from taking a punt on Rosneft. The upshot was both flotations were more like private placements after the Kremlin strong-armed oligarchs and strategic investors into buying into them.
However, the raft of genuine IPOs on the way is likely to suck some liquidity out of the market and depress the growth of the RTS index this year. Just how big this effect will be remains unclear.
Stock exchange trading
Daily trading volumes used to be in the millions; now they are in the billions. The entire market capitalisation of Russia's six main exchanges was about US$100m in 1995; now it is over US1trn.
The returns that can be earned on the Russian stock exchanges are impressive but the rise in daily trading volumes give a better idea of the growing interest in Russian stocks and who is investing into Russia's equity.
The main exchanges
Russia has six exchanges in all but the confusingly named Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System (RTS) dominate the action – neither of which started life as a stock exchange.
The RTS market was launched in 1995 as a by-product of privatisation: if you created privately- owned joint stock companies you had to have a stock market to trade these stocks on.
MICEX began life in 1991 as the platform for interbank loans and later became first the platform for bond trading before adding equities.
As the RTS was the original platform for buying and selling shares, most investors in Russia still tend to quote the RTS index as a measure of how equity investments into Russia are faring.
Since MICEX began equity trading it has sped away from the RTS in terms of exchange-based trading and now accounts for 90% of all securities transactions in Russia – greatly helped by the fact that it has always been home for Gazprom's listed shares, which is now 10 times bigger than any other company in Russia, with a market capitalisation just short of US$300bn at the start of 2007, or accounting for a third of the market capitalisation of all Russian shares on its own.
However, the RTS remains the home of OTC trading – the trading of small companies' stock through informal dealer networks – and following reforms passed in 2006, began posting the prices and volumes of all of its OTC trading in February.
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