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. Last Updated: 07/27/2016

Following Warsaw's IPO Lead

With nine initial public offerings in the first quarter, Moscow is poised to follow a trail blazed by Warsaw toward becoming one of Europe's leading exchanges, PricewaterhouseCoopers said Tuesday.

"We expect Russia to follow a similar pattern to what's happened in Warsaw over the past two, three years," said Steven Berger, PwC partner and head of its transactions department in Russia, as the consultancy announced that it would start including data from Russia in its IPO Watch, an annual report on initial public offerings in Europe.

Warsaw saw IPOs grow sixfold from 2003 to 2004, reaching 36 with a total offering value of 2.98 billion euros ($3.8 billion). This makes the Polish exchange Europe's third-largest, behind London and Euronext, by volume and money raised, according to PwC.

Maintaining an attractive business climate will be the key to Russia's ability to achieve Poland's success, said Chris Weafer, chief strategist with Alfa Bank. "We are getting favorable signs," he said, pointing to President Vladimir Putin's promise to business leaders last month to secure property rights and clean up the tax regime.

This year, PwC's IPO report will for the first time include figures from the MICEX and the RTS. Its 2004 report surveyed 420 IPOs totaling 27.3 billion euros at 13 major European stock exchanges.

"There's a growing interest among European [and] U.S. investors to what's going on in Russian markets," Berger said.

From 2003 to 2004, the RTS and MICEX saw their total number of IPOs drop by five, to 12, but the total volume of money raised went from zero to 241 million euros.

The nine listings in the first quarter of this year raised 119 million euros.

The IPOs are being fueled in part by high-growth sectors such as consumer goods. Supermarket chain Sedmoi Kontinent raised $80.7 million last year on the RTS in the first IPO by a Russian food retailer, while the country's largest juice producer, Lebedyansky, raised a record $151 million in an IPO last month.

"We are witnessing the appearance of companies from other sectors of the economy on the stock market -- agriculture, real estate, retail and food industry -- sectors that were difficult to imagine two to three years ago," Interros head and billionaire Vladimir Potanin said Tuesday at an investment conference organized by the Association of Russian Managers.

Potanin acknowledged that it is sometimes a tough call to decide where to float shares. "There is an opinion that it is best to do placements on domestic exchanges, and that is probably the case," he said.

But companies increase their visibility when listing in London or New York, prompting their trading volumes to grow, he said.

Potanin suggested that a way around the issue would be to list abroad first and then trade at home. "After investors have learned about [companies listed in London or New York], the trade of their shares can be transferred to local exchanges, but already at a new level," he said.

More IPOs are expected this year as Russian companies look to raise capital for further growth or simply increase their transparency. Many firms, however, will probably look West since registration fees and tax procedures make IPOs a costly process at home, Weafer said.

AFK Sistema set a record for a Russian IPO last month, raising 1.04 billion euros on the London Stock Exchange. It was London's largest international IPO since 2001.

The London exchange is preferred by Russian companies due to the corporate scandals that erupted around Enron in 2001, prompting tighter U.S. regulations and increasing the likelihood of investigation by the U.S. markets' watchdog, the Securities Exchange Commission.

PwC, however, said Russian companies with market capitalizations of over $1 billion should not rule out New York. "It makes sense if you're seeking to raise $500 million or more," Berger said. "The SEC has recently, over the past two or three months, become more accommodating to companies from outside the U.S."

There were 420 IPOs in Europe last year, raising 27.29 billion euros in total. The United States lagged behind, with 83 IPOs, but topped Europe in value with 37.54 billion euros, according to PwC.

Staff Writer Lyuba Pronina contributed to this report.