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. Last Updated: 07/27/2016

Pyatyorochka Raises $600M in IPO

VedomostiFriday's offering — about 30 percent of Pyatyorochka's shares — values the supermarket chain at $2 billion.
The owners of Pyatyorochka, Russia's largest supermarket chain, raised $598 million in an initial public offering after pricing the shares at the bottom of a range used to canvass investors.

Founders Andrei Rogachev and Alexander Girda sold 46 million global depositary receipts, or about 30 percent of the grocer, for $13 each, valuing the company at $2 billion, Pyatyorochka said Friday in a statement. Rogachev's wealth is worth at least $1 billion after Friday's sale. They had sought between $13 and $16. The shares fell 1.9 percent to $12.75 as of mid-morning in London.

Russian companies are struggling to persuade investors to pay top dollar amid the country's biggest spate of share sales since the collapse of communism in 1991. Carmaker Severstal-Avto in April became the first Russian company to sell stock below its target price for more than two years, when its parent raised $135 million.

"This is a new Russian company -- a growth story -- and they are always expensive," said Jean-Louis Tauvy, who manages $200 million in Russian stocks at Atria Advisors. Tauvy said he did not buy the shares because they were too expensive.

Friday's sale valued Pyatyorochka at 21 times expected 2005 earnings, compared with an average of 18 for peers in developed markets and 17 for competitors in emerging markets such as Russia, according to a report by Troika Dialog.

Rogachev, a former environmental researcher and computer wholesaler, and Girda, who has a degree in civil aviation, founded Pyatyorochka in St. Petersburg soon after the country defaulted on $40 billion of debt in August 1998, wiping out Russians' savings. The default and the recession that followed hurt the wholesale food business Girda had been running.

The share sale values the fortune of Rogachev, who controlled 51.95 percent of the grocer before the IPO, at $1.04 billion or more. Girda, who had a 43.55 percent stake before the sale, has a net worth of at least $871 million. Rogachev and Girda had owned about 95 percent of the company before the IPO.

"Russian IPOs are starting to resemble Internet stocks in the heydays of the boom, when each new one chases the previous sale, making them pricier and pricier," said Alexei Yazikov, an analyst at Aton.

Investors may also have been concerned after Pyatyorochka said it had to temporarily close all its 109 stores in St. Petersburg because some workers were infected with hepatitis A. The company also has more than 120 stores in Moscow and the Moscow region.

Pyatyorochka closed the stores on the morning of May 2 after nine staff were confirmed as having hepatitis A, the company said last week.

The chain said the closures would not affect 2005 earnings. Pyatyorochka's sales doubled each year from 2000 through 2004, according to UFG, which helped manage the sale. That growth will slow to 35 percent per year through 2009, according to UFG.

The offering is Russia's second-largest, after AFK Sistema, a holding with assets ranging from telecommunications to real estate, raised $1.56 billion in Russia's largest initial public sale in February. Sistema's shares have fallen 8.7 percent since the offering, compared with a 2.5 percent gain for the RTS index.