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. Last Updated: 07/27/2016

Rostelecom Makes New York Debut




Rostelecom became the second Russian company to be listed on the New York Stock Exchange on Tuesday with its issue of Level-2 American Depositary Receipts, a sign that appetite for Russian shares remains strong despite recent market woes.


In the first hour of trading in New York, about 450,000 receipts, or ADRs, traded at an average of $20.58, on par with the Russian stock price of $3.48. Each ADR represents six common shares.


"Trading has gone very well so far," said Jan Sudol, a telecommunications analyst at Merrill Lynch in London. Merrill Lynch is Rostelecom's financial consultant on the ADR issue.


"The price is stable, the turnover is high, and it is much higher than any typical day for Rostelecom on the Russian exchange," Sudol said. The company's price objective for the ADR is $24 within a year.


The U.S. Securities and Exchange Commission approved Rostelecom's Level-2 ADR issue Feb. 5. An ADR is a share look-alike that trades on foreign exchanges supported by domestic shares kept in the Bank of New York.


Companies must conduct three years of Western-standard audits to be eligible for Level-2 ADRs, which do not constitute a new share emission but do list the company on the New York Stock Exchange.


"This is very good for Rostelecom's profile," said analyst Andrei Bogdanov of ING Barings bank. "This is the only privatized company to be listed, and investors will take notice."


Vimpelcom is the only other Russian company to be listed on the Board with its Level-3 ADRs, which indicate a new share issue.


"In the state of stagnation of the Russian stock market, the breakthrough of one of the biggest domestic companies into the international financial market is extremely important," Vladimir Bulgak, deputy prime minister in charge of communications, said in a statement.


Bulgak also suggested that the Rostelecom ADR debut would have an indirect effect on the upcoming sale of 24 percent of telecommunication holding company Svyazinvest's shares.


"We think that this event will be positively reflected on the market price of holding company Svyazinvest's share portfolio, which will be sold in 1998 and will resolve a whole set of fiscal and investment goals," Bulgak said.


Some investors have said now is not a great time for companies to issue ADRs with foreign investors playing conservatively after recent market troubles.


Despite the risks, the steady stream of Russian ADR issues has not let up, said James Green, vice president of the ADR broker market at the Bank of New York, which processes most ADRs.


Rostelecom is not the first Russian company to test the ADR waters since the market downturn. Uralmash issued a Rule 144A ADR on Jan. 15 and Samaraenergo launched its Level-1 ADR on Feb. 9.


"Right now might be a risky time to invest, but any time could be just as risky. Investors must make their investments on a per case basis," Green said.


"We think this issue will be successful. There has been tremendous interest. And the way that these programs work is that they start slowly and then build into very strong programs," he said.


Rostelecom domestic shares closed Tuesday at $3.44, up 4 percent, or $0.134, from Monday's close on the Russian Trading System.