February 10th, 2007

Russian IPOs – Review of the 2006 6th week

Appetite for Russian IPOs fades ?
Three Russian companies made the news this week – Polymetal and Sitronics LSE IPOs (raised about $600 and $350 million, respectively) and GV Gold postponed theirs IPO. Financial Times of London was the first to mention “lackluster demand” – the words that are now cited everywhere. One of the Russian news agencies put on their Web-site and analytical paper with the meaningful caption: “The happy music did not play for long, the sucker dance was short”. That reflected the concern that is voiced everywhere – “Appetite for Russian IPOs fades”. Well, we talked of it more then a year ago, when almost everyone was so obsessed with AIM and London. Over 2006 FT published a whole series of reports mentioning that Russian IPOs are fading. Now we see it. Most of local newspapers and news agencies cited February 7th FT story with word by word transcripts of statements of strategist of Alfa Bank, Polymental and PwC official. I guess, it is time to look for other markets? Euronext? Project Turquoise?

Sberbank IPO
A lot of commentaries this week were on the upcoming Sberbank IPO – “the popular IPO”, as it is dubbed here. Many reports point that the pricing of the stock for average Russian is not contributing to the “popular” image. Another issue – KOMMERSANT DENGI weekly -experimented with various ways to subscribe and found it very laborious – most of the local branches were not too friendly. Highlights of the news:
- in a surprise announcement the head of the Russian Federal Financial Markets Service (FFMS), told journalists that the general public should be better informed about financial risks and warned against the "China syndrome".
- some newspapers consider the idea of "popular IPOs” premature at this time – the Russians are still have to be well educated to be shareholders. GAZETA daily quotes the results of exit polls of “popular shareholders” participating in ROSNEFT IPO: 42% of investors were aged 55+; 28% old pensioners; 11% professional finance mangers; 9% businessmen. This means that most of the players do not really understand what they are doing in this “popular IPO” game.
- this was in a nice manner showed last Friday when due to some insider information Sberbank stocks went down 7% and later came back (this is the second occurrence within a month period). This shocked everyone, and led to further publications and interviews warning novice “investors” of risks
- VEDOMOSTI daily reports that J.P.Morgan and Credit Suisse have unprecedented low fees as the bookrunners – 0.08% of transaction volume

Independent Directors and IPOs
Heidrick & Struggles,
a Chicago-based consulting firm, released a study on Russian corporate governance and IPO:
- as compared to their Western peers the Russian companies get 20% in IPO proceeds due to low level of transparency and corporate governance;
- within the nearest years the Russian companies will need about 100 independent directors of foreign origin
More at http://equity-russia.blogspot.com/