Russian retailer Lenta reportedly ready to accelerate IPO plans

By bne IntelliNews September 18, 2013

bne -

With interest in the Russian equity market reviving, retailer Lenta could accelerate its preparations to launch a planned IPO in London within the next two months, local media reported unnamed sources as claiming on September 17. Such a deal could herald a new wave of Russian listings.

Lenta's owners - US private equity fund TPG and state-owned VTB Capital - started talking to banks about a share offering worth at least $1bn in the spring, and although JP Morgan, Credit Suisse, UBS, Deutsche Bank and VTB Capital were appointed in the summer, sources at the time said the St Petersburg hypermarket operator was unlikely to make a move this year. However, media is now reporting sources as saying that the deal could be pushed through as soon as the fourth quarter.

Lenta could offer a stake on the London Stock Exchange by late October or early November, a banking source told Prime. "Investors like retail stories. In Russia they remember the success of Magnit, that is why they will have a positive outlook towards Lenta," the source said.

Emerging market equities around the world have suffered on the back of fears that yet another wave of crisis could be on the way. The looming end of quantitative easing by the US Federal Reserve is also a significant threat, but some analysts continue to point at Russia's solid macro-economic fundamentals and the fact that equities are incredibly cheap on a relative basis to the other BRIC nations.

Russian issuers appear to be starting to believe such talk, with several other companies starting to make noises about a possible IPO - the first time the phrase has been heard in close to a year. The last Russian debut in London was the $1.8bn listing of mobile operator Megafon in November last year.

Oil producer Bashneft plans a foreign share offering around the end of next year, it said earlier in September, but has not yet appointed banks or decided on an amount to be sold. Retail bank Tinkoff Credit Systems is also actively preparing a deal. Meanwhile, the state has said it will revive its massive privatisation programme this year if market conditions improve.

While the release of huge volumes of shares by the state could hit plans in sectors such as energy and banking, it would unlikely dampen appetite for exposure to the Russian retail sector, which is seen as offering huge growth opportunity. The limited number of names available to investors has also helped push up valuations.

The same story applies to sectors such as IT, with the huge success of the IPO of search engine Yandex in 2011 the standout Russian issue in recent years. Those dynamics saw electronic payments operator Qiwi file on September 17 a prospectus with the US Securities and Exchange Commission for a secondary share offering (SPO). The application for the SPO comes less than six months after the company's IPO on Nasdaq, and will see the free float increase to 42%, from 26%

Analysts at Renaissance Capital suggest that while the timing is somewhat surprising, the IT sector remains attractive enough to push the deal through. "Overall, while this offering is coming earlier than the market had expected, it does not come as a surprise," they write. "The major sellers are financial investors, so we think the additional liquidity should be a positive for the stock and help reduce some of the volatility in its trading."

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