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. Last Updated: 07/27/2016

Bourses Fret Over IPO Prospects

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Source: UralSib Research

NAKHABINO, Moscow Region -- Representatives from leading bourses sounded a note of caution Friday, predicting that the bull rush of Russian initial public offerings might be hit in the near term by the turmoil that has rocked global markets this summer.

"Some brokers have temporarily taken their foot off the accelerator," Jon Edwards, senior manager responsible for international business development at the London Stock Exchange, said on the sidelines of a seminar at the Moscow Country Club.

His words were echoed by Gennady Margolit, deputy general director of the MICEX exchange. "Maybe some companies will put off their placements [this year], but not all," Margolit said.

The stakes are high. Ahead of the presidential election in March, some shareholders covet the added security a foreign shareholder base will bring. In the short term, the political situation looks quite stable. President Vladimir Putin brought in a new broom to the Cabinet last week in the shape of little-known technocrat Viktor Zubkov, and the markets barely batted an eyelid.

"There's a strong sense of confidence that the electoral season will be fine," said Chris Weafer, chief strategist at UralSib. "But you never know."

Investors have been expecting a raft of IPOs in the second half of this year. Of the projected $30 billion-worth for 2007, $25 billion has already been raised, $12.5 billion of that from IPOs in London.

United Company RusAl, the metals heavyweight majority-controlled by billionaire Oleg Deripaska, has been widely expected to come to market later this year. The company's management has done the necessary groundwork and should make a final decision come October. Analysts say it could raise $7 billion in the right conditions.

Tom Mundy, equity strategist at Renaissance Capital, said the environment for pushing an IPO was currently less favorable. But, he said: "The Russian IPO process has been very resilient. Investors have an awful lot of cash, and people want to get back into Russia."

Investors are currently waiting on a batch of economic data, which will provide a better idea of just how deep the turmoil on the global markets, set off by the U.S. subprime crisis, will go.

"If the numbers are good, they could spark another strong rally," Weafer said.

Utilities could yet help the 2007 IPO figure past the $30 billion mark.

But so far the power sector sales, such as those announced Saturday of stakes in OGK-4 and TGK-1 to Germany's E.On and Gazprom, respectively, for a total of $8.6 billion, have gone to strategic investors -- not in IPOs.

"If [the OGKs] come to market, it is reasonable to expect there will be buyers. They won't be too hung up on price," the LSE's Edwards said.

VTB, which went public in May, raising $8 billion, was this week looking pretty sorry for itself. Since listing, its share price has fallen 20.7 percent, while its global depositary receipts trading in London have slid by 19.98 percent to $8.45. Its share price closed Friday at 10.78 kopeks, the lowest since the IPO.

Analysts said the bank, the country's largest after Sberbank, was a victim of its own success. "Even though they raised a lot of money, a lot of that money came from Russian investors," Weafer said. "Very few [portfolio] investors are looking to support it." It does not look as if the government is either, despite VTB chief Andrei Kostin saying in June that the state would bolster the stock price should it fall.

Other big fallers post-IPO include Sitronics (down 55 percent to $5.40 per GDR), Polymetal (down 29 percent to $5.48) and West Siberian Resources (down 18.4 percent to 81 cents). Not that it's all bad. Rosinter, the restaurant group, is up 31.25 percent.

Fund managers said it was likely that Russian companies would take a hit. "[Companies] priced themselves very aggressively. It is a very short-sighted corporate strategy," said Timothy McCutcheon, fund manager at DBM Capital. "It has been a sellers' market."