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. Last Updated: 07/27/2016

Kalina Fashions Plan for 2003 IPO

MTChyorny Zhemchug lotions and 32 toothpaste are popular in most areas but Moscow.
Following in the footsteps of the country's largest food company Wimm-Bill-Dann, Russia's cosmetics leader Kalina announced on Wednesday that it intends to tap world capital markets with an initial public offering in the fall of 2003.

The Urals-based holding, perhaps best known for its Chyorny Zhemchug (Black Pearl) line of skin-care products and 32 toothpaste, will float a stake of at least 25 percent, said Timur Goryayev, Kalina's general director and main shareholder.

Goryayev said paperwork for the offering is just now being drawn up, and Kalina has yet to pick an exchange on which to place the planned global depositary receipts. He said proceeds will be used to increase the holding's liquidity and fund expansion.

Kalina's financial director Alexander Petrov said that management is currently looking for a bank to underwrite the IPO and that one is to be chosen by mid-April.

The exact size of the stake to be floated and its expected price will only be decided after Kalina's 2002 GAAP financial results are compiled in the spring of 2003, he said. Kalina is audited by Big Five accounting firm Deloitte & Touche.

Petrov, citing independent experts, estimated the current capitalization of the holding at $137 million. Sales topped $120 million in 2001 and are expected to pass $140 million in 2002. In 2001, its net profit grew 57.5 percent year on year to 448.56 million rubles ($14.4 million).

A 79 percent stake in the holding is split between a group of individuals, with Goryayev holding a controlling majority of more than 50 percent. The European Bank for Reconstruction and Development has 17.84 percent, which it acquired for $10 million in 2000. Another 3.16 percent is held by unspecified legal entities.

Goryayev said the EBRD will not include its stake in the IPO.

Kalina, founded as a Soviet cosmetics plant in Yekaterinburg in 1942, has seen its popularity soar over the past five years. Goryayev, who snapped up a majority of its shares during the voucher privatizations of 1993-94, said -- without a trace of pride -- that it was not until he was elected general director in 1996 that the holding began to thrive.

"We had hired and removed directors regularly until that point," said Goryayev, now 35. "So I just decided it was time to get involved."

The holding currently employs about 3,500 people who work at its flagship factory Uralskiye Samotsvety (Urals Gems) in Yekaterinburg and at plants in Omsk and the former Soviet republics of Uzbekistan and Kazakhstan. Kalina estimates it has a quarter of both the skin-care and toothpaste markets in Russia.

In the metals- and heavy industry-rich Urals, the decision to pursue cosmetics may appear odd. But Goryayev said he has always had a deep interest in the business and Kalina's goal, among others, is to find "the secrets of how to please a woman."

"I got very involved with everything, including testing new scents or designing labels and packages," he said.

According to Goryayev, his typical customers are provincial women -- not from Moscow and not from wealthy families.

"I believe that before women enter a store they already know whether they are going to buy Russian-made or imported products," Goryayev said. "And we are here for those who choose to buy Russian cosmetics."

If Kalina's IPO goes ahead as planned, the holding will join a handful of Russian companies that have dared to enter world markets. James Fenkner, chief strategist with Troika Dialog, said the bid may well prove successful given the fact that just like Wimm-Bill-Dann -- whose IPO in February raised $207 million -- Kalina owes its success almost exclusively to the skills of its management.

"The general evaluation of Russia is just so low that it doesn't make any sense to sell equity. But they might be able to because the holding has been built from the ground up," he said. "Everything so far has been built from the ground up -- Vimpelcom, MTS, Wimm-Bill-Dann.

"Of course, they use Soviet assets, but most of the value-added has been put in by management," he added.

Goryayev said the IPO would be aimed at portfolio investors and the gains would be mainly used to expand an empire that already exports to almost every former Soviet republic. Kalina is currently looking for premises to open an outlet in New York's Brighton Beach.

Goryayev acknowledged that Kalina had a long way to go to conquer the Moscow market but said he had a plan in place to raise its profile here over several years.

"We are not rushing," he said.

Fenkner said Kalina's distance from Moscow -- both in sales and production -- could be considered an advantage. Apart from economic reasons such as cheaper production costs, a float from a holding in the Urals could spark more curiosity and interest from investors.

"It just makes the story even sexier," he said.