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. Last Updated: 07/27/2016

Protek Adds Itself to List of IPO Hopefuls

LONDON -- Protek, a drugs wholesaler, is looking to add itself to a long list of potential Russian initial public offerings, but bankers think it may take a while for many to come to market.

While there is demand for new Russian equity, many of the country's companies are not yet prepared to list, bankers said.

A source close to Protek said that the company has mandated the investment banking arm of Swiss bank UBS to look at options for it to go public.

UBS declined to comment.

If a decision is made to float, the source said Protek would look at coming to market in 2004 and is considering both foreign and domestic listings.

If Protek decides on an IPO it will join a long list of Russian companies that have recently announced an intention to list shares, as the country's companies benefit from increased foreign investment and robust economic growth of its own.

The benchmark RTS index hit a new 5-1/2 year high on Tuesday and Economic Development and Trade Minister German Gref said the country's gross domestic product was up 7.1 percent in the first five months of the year, compared to 3.7 percent a year earlier.

Moreover, with much of the index in the oil and gas sector, investors are keen to broaden their portfolios into other industries.

"There is huge demand for new Russian equity. Fund managers are dying to diversify their portfolio, so an attractively priced IPO will sell like hot cakes," said Florian Fenner, a fund manager at UFG Russia Select Fund.

Protek is also looking at its options at a time when conditions for Russian retailers are buoyant. Analysts say that potential for these companies is still high, particularly for those with a presence in Moscow.

"Russians are getting richer and opting for higher quality products and these are exactly what the chains [such as Protek] can offer," said Natasha Zagvozdina, an analyst at Renaissance Capital.

Fellow retailer Pyatyorochka, meat processor Cherkizovsky, plane maker Sukhoi and heavy machinery maker Siloviye Mashiny are among the other companies that have declared an intention to float this year.

However, so far this year only pharmaceutical retailer 36.6 has actually made it to market, and that was after lowering the indicative terms to make the shares cheaper for investors.

Few more are likely to be listing this year, bankers said.

"At one time Russian shares were attractive primarily because they were cheap. Now an issuer has to offer investors more," said Josh Larson, head of operations for Morgan Stanley's Russian business.

"Companies will have to prove they have the probability of high growth and an ability to offer substantial liquidity in shares, otherwise it is going to be difficult," he said.

Moreover, many companies are just not ready to come to market, particularly given many have ambitions to list abroad.

They need to get their accounts up to international standards, sort out their ownership structures and prove they are accountable and transparent, UFG's Fenner said.