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. Last Updated: 07/27/2016

$1.6Bln Sistema IPO Lights Up LSE

LONDON -- AFK Sistema raised $1.56 billion in an initial public offering in London on Wednesday, valuing the company at more than $8 billion and making it the largest-ever Russian flotation.

The sale will leave Sistema president Vladimir Yevtushenkov with 65 percent of the holding, which owns half of Russian mobile operator Mobile TeleSystems but which is seen as a broader play on Russia's consumer growth and also as a test of investor appetite for Russian stocks.

The IPO raised more money than any London flotation for at least a year, and Sistema is the biggest firm to list in London for four years, since the international listing of mobile operator Orange in February 2001.

Market sources said the offer was 2.6 times covered at the issue price, indicating demand of over $3.5 billion.

Sistema priced the global depositary receipts at $17 each, near the middle of the indicated $15-to-$19.50 range, and as reported overnight, they started trading on the London Stock Exchange at $17.60, a premium of 3.5 percent to the issue price.

Including a "greenshoe" option that the underwriters of the issue hold, about 19 percent of the company will be sold, valuing it at about $8.2 billion.

Sistema also controls Moscow fixed-line operator MGTS, has businesses spanning technology, banking and property, and is majority owner of the Detsky Mir children's goods outlet.

Analysts said the offer was a key test of appetite for Russian assets after investment in the country was shaken by the government's legal assault on oil firm Yukos which it has crushed with a $27 billion back tax claim.

"Since the end of last year the market was flush with local liquidity, while foreigners were leaving and there was no new money inflow," Raiffeisen Bank analyst Madina Butayeva said.

"This IPO will help foreign investors review their attitude towards Russia."

But hot on the heels of the Sistema's success, the government dealt another blow to investor confidence by heaping a $25 million back tax claim on regional telecom firm Dalsvyaz.

The demand, amounting to a quarter of the company's market capitalization, follows similar claims slapped on No. 2 mobile phone firm VimpelCom and river shipper Volgotanker.

"I just don't need the headache of investing in Russia. There are other investment opportunities out there without the political risk," said one fund manager based in Scotland.

Some analysts now fear an onslaught on "oligarchs," businessmen who gained control of large swathes of Russia's economy during the murky privatizations of the 1990s, and many fund managers are wary of what they call "oligarch stocks."

"Yevtushenkov is an oligarch in the Russian sense of the word," said Alfa Bank analyst Andrei Bogdanov.

"He has not done any political faux pas so far, but you can never be absolutely sure of anything in this country."

(Reuters, Bloomberg)