Graham Stack in Moscow -

Russia's 2007 IPO boom came to a shuddering halt in the first half of 2008, and nothing looks likely to change that in the second half.

The list is long of companies with plans to IPO this year that have now put them on ice: banking names such as UralSib, Gazprombank, KIT-Finans, AK BARS Bank and ZENIT Bank; and industrials such as AvtoVAZ and Sibur, Nitol Group, Acron and Mail.ru. In fact it's easier to name the ones that actually happened in second quarter of this year; there was only one, rail operator GlobalTrans that IPO'd on April 30 raising $449m.

According to PBN Company, this translates into one second-quarter IPO compared to 10 in 2007, with a total value of second quarter IPOs in 2007 was $14.7bn, compared to GlobalTrans half billion. PNO vice president Artyom Dovlatov notes that the 2007 IPO result was exceptional partly due to two massive bank IPOs by VTB and Sberbank, the former the world's largest in 2007, raising $8bn in May 2007.

However, it's clearly not just the size of the offerings, but their number that has slumped, and there is a whole list of reasons for this.

Reasons to be cheerless

Alfa Bank's Angelikia Henkel lists a dozen reasons why companies are postponing IPOs. First, according to Henkel, the tightening of international and domestic liquidity has made the global market for IPOs and secondary offerings less attractive.

Then come worsening conditions on international stock markets, with emerging markets dropping by 45% in some cases. Third, a sharp decline in M&A deals has made valuation of shares difficult for investors. Fourth, says Henkel, market structure has shifted in favour of private placements, with other forms of raising capital, such as pre-IPOs and private sales gaining in popularity ahead of IPOs.

Fifth and sixth, investor confidence in the banking sector has fallen sharply, and investors are also getting cold feet about investing in relatively small and unknown companies. Seventh, shares of companies IPOing in 2007 have mostly tanked, and, additionally, reason number eight, "People's IPOs" of state-owned companies like Sberbank or VTB have temporarily been abandoned.

According to Henkel, higher bond yields have triggered an outflow to bond markets, while funds have preferred the secondary market to IPOs as soaring commodity prices boost the extraction sector. Eleventh, funds available on the IPO market have been absorbed by $6.1bn worth of power generation share placements of Russian power sector companies in first quarter 2008.

Twelfth and finally, according to Henkel, the sectorial distribution of offerings has changed: there is a shift towards relatively exotic sectors in the Russian context such as agriculture and Internet companies looking to raise funds, and investors feel less at ease with them.

This latter is a view shared by Ernst and Young Russia's IPO department head Marchello Gelashvili, who expects "further diversification" to take place in the IPO market, "with diverse mid-sized IPOs' showing" a rise in public offerings from companies in the technology, agriculture, infrastructure and engineering sectors." And Deutsche Bank's Yaroslav Lissovili also sees infrastructure and IT as the future IPO stars.

However, according to Troiika's Mikhail Stiskin, with market conditions worsening, the next round of IPO activity is not likely to happen before 2009. Next up, and theoretically still on the cards, is the much anticipated IPO of Alisher Usmanov's metals giant Metalloinvest, expected to float 25% in autumn 2008. "They are preparing for it, but it's not going to happen in 2008," says Stiskin. "Market sentiment is just too bad."

As for the $4bn IPO of Mechel Mining, slated for second half of 2008, due to the handbagging Mechel received from Prime Minister Vladimir Putin for alleged transfer pricing, "this is obviously now not going to happen for another year or 18 months," says Stiskin.

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