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. Last Updated: 07/27/2016

NEWS ANALYSIS: Equity Offerings Abroad Soar




LONDON -- Russian companies are again tapping the pockets of investors with the biggest slate of overseas equity offerings since 1997, but fund managers say an improving economy means those who are bullish on the bear are not going to lose their shirts as happened in 1998.


More than $1 billion of Russian company stock could be issued overseas in 2000 after a drought that saw just one deal worth $55 million in 1998 and 1999.


Prior to the 1998 crash, which saw the ruble devalued and Russia default on its debt, foreign investors had scrambled for second-line stocks in what many then believed to be a repeat of the gold rush.


"We are much more selective than we used to be in the past. There is no more gold rush," said Jury Ostrowski, Eastern Europe fund manager at Pictet.


The economy is booming, boosted by a trebling of oil prices since the start of 1999 and the devaluation that stimulated the domestic economy, now growing at 8.4 percent.


Foreign currency reserves of $22.3 billion are close to their all-time high, and there is also the prospect of real reform for the first time under the new government of President Vladimir Putin.


Companies wanting to sell stock to overseas investors now have to produce accounts and tend to come from a much smaller range of sectors such as oil, telecommunications and electricity.


Mark Cooke, fund manager at Brunswick Capital Management, pointed to the difference between the current scene and 1997, "when you had people putting money into, for example, the defense sector."


"Then they were buying the fantasy and buying the bubble. There is not the same feeding frenzy or orgy of excitement this time round," he said.


So far, foreign investors have absorbed a $320 million deal for Moscow cellular operator Mobile TeleSystems at an uncertain time for global markets and when others were being scaled back.


Those making presentations to investors include mobile telephone company Vimpelcom, which already has a U.S. offering, and electrical utility Lenenergo.


Later this year, there will be another overseas offer for oil giant LUKoil, one of the most open Russian companies, and for national carrier Aeroflot.


Although the new administration of Vladimir Putin has been in power for only a few months, he has already signaled his willingness to tackle Russia's structural problems, ironing out discrepancies in the tax system and taking on powerful regional governors.


"People are now asking the right questions in Russia. On the one hand, you have structural economic reform and on the other, corporate governance reform," said John-Paul Smith, emerging Europe strategist at Morgan Stanley.


Worries do remain over how minority shareholders are treated, especially in the high-profile case of national power grid Unified Energy Systems, which supplies electricity to most households in the world's largest landmass.


UES had proposed a restructuring that could have seen it broken up into tens of smaller companies, raising fears among some shareholders of a repeat of the crony privatization of the 1990s, when assets were sold at a fraction of their true value.


Fund managers with 15 percent of the company sent a letter to Putin demanding he step in to halt the restructuring.


"I think what is very significant about UES is that shareholders appear to have stopped something happening before it happened," said Brunswick's Cooke, one of the signatories to the letter.


There are even signs of change at Gazprom, the world's largest natural gas company and a byword for untransparency, as the management has lost control of the board, something that would have been impossible in former days.