Elena Khisamova Says about Russian IPOS
OREANDA-NEWS. September 21, 2007. Since 2004 the Russian market saw a real breakthrough in Russian companies’ initial public offerings and secondary placements in key sectors of economy. The retail and consumer goods companies were particularly active, having pioneered the Russian IPO path with IPOs of Seventh Continent, Lebedyansky, Pyaterochka, Magnit. We saw the increased number of landmark deals in other sectors, such as telecoms, metals & mining, oil & gas, energy and banking sector in 2006-2007, with multibillion Rosneft and VTB IPOs that once more proved the healthy demand from both domestic and international investors.
Russian market is clearly coming of age, now fulfilling its primary function – providing capital for fast growing local companies and facilitating further corporate expansion.
Last year the Russian companies and those with the assets in Russia, raised in total $13bn during IPOs with both international and local listings (LSE, NYSE, AIM, NASDAQ, RTS and MICEX).
The record number of IPOs in 2006 allowed to speak about a sustained boom in capital markets activity among local companies and expect further growth in both numbers and volumes of IPO deals. The 1H 2007 showed this to be just the beginning of a much bigger story as London alone saw $13.3bn of Russian IPOs and the Russian market listings totaled $6.5bn.
In June 2006 the Russian government gave a green light to the process of equity raising through new share issues of pilot OGKs and TGKs, and after that the Board of RAO UES adopted the plan to issue new shares in five generating firms to raise money for investment in the electricity sector. These five pilot companies include OGK-3, OGK-4, OGK-5, as well as Mosenergo and TGK-9. Since that time we saw the beginning of realization of these ambitious plans during the successful IPO of OGK-5 with listings on RTS and MICEX that raised USD459m in the 4Q2006 and sale of the new shares of OGK-3 to strategic investor ($3.1bn).
Companies representing the new sectors of the Russian securities market, such as real estate, have been entering the IPO market with the recent Europe’s largest real estate IPO of PIK Group ($1.9bn IPO), making investors see more exciting opportunities in the Russian market.
We see mid-cap and regional companies becoming more active on the local level could be a potential source of more deals, especially in the domestic market. This is a positive sign for the Russian securities market, clearly showing that the local market is strong with real liquidity, which is why we can expect more and more IPOs with local listings on the RTS and MICEX.
However investment bankers are cautious in their forecasts of IPO results in the next months of 2007 with investors showing preliminary less activity than was earlier expected for the 2H2007.
With investors being under pressure of the current situation in the US financial market and its inevitable impact on the Global markets, it is quite understandable that the investor community prefers to wait and see how the situation develops in the nearest future. In the meanwhile the markets have been seeing a "flight to safety".
The market is keeping its breath while waiting for the coming macroeconomic statistics, Federal Reserve rate revision and evidence of recent crisis' impact on the real sector of economy which might influence the situation in the international markets. In case of consistently negative news flow coming in next one-two months the situation might aggravate. And this will mean that investors will have to be patient and wait until the markets improve.
The positive news for the Russian companies is good fundamentals of the Russian economy. It is strong and showing healthy 7% annual growth and the macroeconomic forecasts for the next 5 years remain very positive for Russia. Experts say that in mid- and long-term domestic market will not be affected by the situation in the western markets.
Therefore sooner or later investors will realize that Russia’s growing economy is the place to be to benefit from strong results of the Russian companies and promising perspectives of the Russian IPO activity.
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