Real Estate Leaders Share IPO Options

The sleek flat-screen television at the Ritz-Carlton was ringed by a classical gilt frame so ornate it looked like broccoli clusters had been spray-painted gold and glued around the edges.

But no one was looking at that screen.

Instead, representatives from Russian construction, development and real estate firms in the dark, oak-paneled room were intently studying the screen next to it, which was projecting the steps necessary to launch a successful IPO on the London Stock Exchange.

Varun Gupta, a partner at Allen & Overy law firm, gave a presentation on structuring companies for the public market. His first slide had the almost Soviet exhortation of "A lot needs to be done!"

Gupta focused on how to structure a company for a launch, noting that most companies stumble when it comes to organizing their strategy and business plan, their capital/funding structure, their shareholder/corporate strategy, their management reporting, their corporate image and brand awareness.

Though Gupta focused on the many shortcomings in the development of the local real estate sector, he said "an international Russian company will not be an oxymoron in five to 10 years."

The presence of firms like Basic Element, Hermitage Construction & Management, RosEvroDevelopment, PIK Group and Mirax Group suggest that they are interested in making that true.

The conference, which was sponsored by the LSE, had representatives from about 60 companies.

"We will definitely talk about an IPO in 2009," said Andrei Saksin, deputy CFO of RosEvroDevelopment.

In studying where to launch an IPO, Saksin said his firm was looking at market capitalization, regulatory requirements, a broad base of investors and liquidity.

"The main task of Russian companies is to have correct strategies, strong financial management and good corporate governance," he said. "These are also the biggest challenges we face," Saksin added, echoing the analysis of many of the experts at the conference.

While Gupta outlined the weak points Russian real estate companies have faced in reaching an IPO, some participants went so far as to question whether the country's real estate firms should even be trying to hold IPOs.

"There's a lot of sense in not floating real estate shares," said Greg Thain, the chairman of Shared Value, a sales and marketing firm in emerging markets.

"Russian firms are bullish. They don't want to take the downside," he said, explaining that they try to float at 100 percent of their value, whereas Western firms sell at 80 percent so that their stock will go up almost immediately.

As a result, he said, "Your stock goes down for one or two years unless you have good investor relations." And this, Thain and others said, has not been a strong point for Russian firms.

"There's nothing worse than mugging your investors for a billion dollars and then not talking to them for 12 months," Thain said. "You need to get them involved and let them know something is happening."

Other participants, however, were more upbeat about real estate firms' share listings, saying they were a way to raise capital and take advantage of relatively inexpensive land here.

Tim Millard, head of the advisory department at Cushman & Wakefield Stiles and Riabokobylko, said IPOs were the No. 1 way to raise capital and get companies full value.

Millard also said land costs were lower in Russia, making it is easier to earn profits at a 100 percent listing. "In six to nine months from now, we'll start seeing them coming back to the market," he said.

Even for companies not planning an immediate IPO, the conference was an opportunity to learn from the experiences of those who had already offered.

"This is absolutely the right time to start looking at IPO options," said Jon Edwards, a senior manager of international business development at the London Stock Exchange.

"When things do get better, you don't want to be stuck in the crowd," he said.