Russian IPOs look set to disappoint for another year

By bne IntelliNews March 24, 2011

bne -

Just as in 2010, forecasts of new equity issuance from Russia were grand at the start of this year, with talk of up to $30bn worth expected to be put on the table. However, global macroeconomic and geopolitical uncertainties have considerably dulled prospects, says a new report from Uralsib.

Chief strategist at Uralsib, Chris Weafer, notes that whilst new equity issuance across global markets over the first two months of 2011 was at a record high of $26bn, Russian IPOs have managed to raise no more than $360m, whilst the state's privatisation programme pulled in $3.3bn, but only after the price on the 10% stake in VTB Group had dropped 20% or so during the roadshow.

"The total value of potential new equity issuance originally targeted in 2011 from non-state sources may be $15bn-20bn, while the state had hoped to place $10bn of its $30bn three-year program," Weafer writes, before warning that just like last year, the final figure is likely to come in well below. "That is far too ambitious in the current environment. If current market conditions continue through to the third quarter of 2011, the total private sector issuance may be in the range $5bn-10bn and the state's privatisation programme may be cut to about $6bn."

Forecasts for share offerings in 2010 were put at around $20bn at the start of the year, but no more than $6.6bn was actually issued, as offers fell like flies in the face of resistance from investors. And Weafer notes that current market conditions have investors just as wary on new issues, despite the fact that Russia's stock market is outperforming most of its global peers so far this year. "Current market performance is being driven by the oil and gas sector," he notes, "while investors remain wary of domestic themes and of locking into new illiquid names."

At the same time, investors continue to see more value in oversold developed market stocks than emerging market names, which have inflation risk hanging over them. And that could mean Russian issuers will face huge competition. Dealogic reports that it has identified a $48bn backlog of IPOs globally, and as Weafer points out, most of the record amount of new issuance so far this year has come from the US and other big developed markets.

By contrast, Russian IPOs fared badly in February, with three of the four (from coke and pig iron producer Koks, energy-industry supplier ChelPipe, and gold miner Nord Gold) failing to make it past the post, whilst the only finisher, Hydraulic Machines and Systems, barely limped across the line.

Limited interest

Weafer says the lessons from the 2010 programme, which were reinforced in the failed issues this year, are obvious.

First, that in difficult market conditions investors want a very deep discount to existing industry peers to reflect the liquidity risk offered by many Russian companies. However, that's a well-established story, and most issuers appear to think it doesn't apply to them. More specifically, says Weafer, issuers in the more established sectors need to think carefully before coming to market. "The appetite for stocks in industries that are already well represented on the stock market, such as metals and mining, is a lot less than for stocks that offer exposure to high-growth industries, or to areas of the economy not currently well represented in the stock market. To buy into a 'more-of-the-same' stock, investors want a much deeper discount."

At the same time, he suggests, investors are also looking closely at the motivation for equity issues. "There is little interest in buying stock simply to cash out the core shareholders. In such instances, investors will also want a very deep discount. There is better demand for issuance where the proceeds will be used within the company, eg. to repay debt or to fund acquisitions and growth."

All this makes predictions for the rest of the year difficult. "At this point in time... with so many variables in the global macro and geopolitical environment, it is almost impossible to predict the level of expected investor demand for the next quarter or for the second half of 2011," says Weafer.

The demand from issuers is easier to calculate. "As in most other economies, there is considerable pent-up demand for new equity issuance by Russia's companies. The total over several years could be as high as $50bn from the private sector alone, albeit the total value of issuance ambitions that has been previously disclosed publicly for 2011 is around $17.5bn.

In addition, he notes, phase one of the state's privatisation programme aims to raise about $30bn over a three-year period, with several big state corporations already indicating their ambition to list on the stock market. Russian Railways is one of those that is planning a public listing in the "next few years" and is aiming for a valuation range of $60bn-100bn. The CEO recently said that the company is today worth about $57bn, while pre-crisis its market value was $100bn.

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.