Global Woes Won't Slow Russian IPOs

MTPBN president Stuart Leasor presenting an annual IPO report on Tuesday as Necarsulmer, second left, looks on.
Russian companies are expected to raise close to $30 billion this year in initial public offerings, despite the global financial crunch, according to a report released Tuesday by The PBN Company.

The bulk of this year's floats are expected to come from companies in fast-growing and politically important sectors, such as infrastructure, engineering and agriculture, the report said.

"The worldwide credit crunch is a factor that actually works in favor of Russia and other developing markets," PBN chief executive Peter Necarsulmer said Tuesday.

"Factors such as the budget surplus, political stability and buoyant economic growth rates make the Russian economy a countertrend to that of the United States," he said, adding that PBN was "very bullish about Russia's economic prospects."

Russian companies, led by Sberbank and VTB, raised $29.4 billion in IPOs last year, far ahead of companies from any other European country.

The report, which is PBN's third annual IPO survey, reviewed 33 companies from the Commonwealth of Independent States that listed in 2007 and analyzed the development and outlook for such IPOs.

The onslaught of the global liquidity crisis in 2007 sparked a number of high-profile cancellations and postponements, including by United Company RusAl, which had been one of the year's most anticipated flotations.

But, while some companies were deterred, the report said, a large number broke the mold, including fertilizer company Uralkali, which was heavily oversubscribed.

Sberbank and VTB together raised $12.4 billion in so-called people's IPOs, making them the world's largest floats in 2007.

The report noted that while many IPOs were delayed, overall figures showed an acceleration in the number of CIS floats, from 16 in 2005 to 23 in 2006 and 33 in 2007.

There was also a corresponding increase in funds raised, from $6.5 billion in 2005 to $22 billion in 2006 and $34.3 billion in 2007. Company valuations were also considerably higher.

The value of the listings, starting from a modest $8 million raised by wheat processor Khleb Altaya in 2005, have spiraled, with companies raising an average of $1.04 billion last year, the report said.

Russian offers dominated in the ex-Soviet states, with 23 companies raising $29.4 billion -- 86 percent of the total last year.

While London remains the preferred destination for CIS companies seeking equity, the report said, Moscow is fast becoming a player.

Funds raised on the RTS and MICEX -- just 6 percent of the total in 2005 and 2006 -- accounted for 30 percent last year. Companies listed on local exchanges have also outperformed those listed abroad, the report said.

CIS listings are not longer "exits and cash-outs by founding shareholders," the report noted, adding that 81 percent of all funds raised last year were reinvested, compared with only 35 percent a year earlier.

UralSib banking analyst Leonid Slipchenko said that while the CIS looked relatively strong amid fears of a global downturn, many Russian companies were still apprehensive of the global credit crunch and some had already delayed their IPOs.

"The key word in the market is 'caution,'" Slipchenko said. "While political stability and economic growth attract investors, Russia cannot be on the sidelines of the global credit crisis."