BasEl Picks Hong Kong for Metals Firm IPO

Oleg Deripaska, the country's richest man, picked Hong Kong as the venue for his first initial public offering -- a planned share sale this year by copper and molybdenum producer SMR.

The decision reflects the higher valuations for metals companies available on Asian stock exchanges over rival European and North American bourses. Deripaska's United Company RusAl, the world's biggest aluminum producer, said last month that it had not decided where to sell shares after the Financial Times reported that it might choose Hong Kong over London.

"We see that currently Hong Kong is offering much better multiples" on stock valuations, SMR chief executive Geoffrey Cowley said Monday at the CIS Metals Summit in Moscow. The company plans an offering "at the end of the third or beginning of the fourth quarter this year," he said.

SMR, which produces about 6 percent of the world's supply of ferro-molybdenum used in stainless steel, is the first of seven units that Deripaska's Basic Element holding company plans to offer to the public. Minority stakes in the units will be sold in the next three years, Basic Element chief executive Gulzhan Moldazhanova said in November.

"If they do come out and get a premium in Hong Kong, we're going to see a great stampede" of Russian companies listing in Asia, said James Fenkner, who manages $100 million of assets at Moscow-based Red Star Asset Management.

Amurmetal Group, a steel producer based in the Far East, may sell shares "on an Asian bourse" next year, Sergei Khokhlov, the chief of the group's management company, told reporters Monday, without giving further details.

Basic Element plans to offer about 25 percent of SMR in Hong Kong, with the number of shares to be decided after it choses banks to manage the sale next week, said Cowley, adding that SMR was worth about $700 million. An increase in London valuations for mining companies may prompt the company to switch exchanges, he added.

"London has a deep analyst base and investors are familiar with the Russia story," Fenkner said. "The limitations in investing in China make the premium there a kind of a mirage."

He also bought stakes in construction companies last year including Germany's Hochtief AG, Austria's Strabag SE and Transstroi.

RusAl considered listing in London toward the end of 2007 before delaying plans because of a U.S.-led downturn in global financial markets, shareholder and chairman Viktor Vekselberg said in November. Six investment banks were hired for the IPO, the Mineweb news service reported.

There is a "95 percent chance" RusAl will shift its proposed $9 billion-plus IPO from London to Hong Kong, the Financial Times reported on Jan. 23, citing an unidentified Basic Element official.

SMR, which owns two Russian plants, will expand molybdenum production by 10 percent per year over the next two years, the company said in December. It produced 4,464 tons in 2006.

The company also mines copper in Russia, and is developing a gold mine in Kyrgyzstan and a gold and silver project in Mongolia.