Russian IPOs: Russian companies are back to the IPO game. Offerings in progress in London include hypermarket O’Key and internet holding company Mail.ru. But with many IPOs now to choose from, investors’ scepticism towards Russian ones won’t be easily overcome.
Recent Russian issues on other exchanges have struggled to attract interest. Iron ore miner IRC this month slashed the issue price and halved the size of its Hong Kong listing - yet it still fell eight per cent on its October 21 debut. Another offering, the $300 million Moscow listing of microelectronics firm Monocrystal, was pulled due to “market conditions”.
This doesn't necessarily augur ill for other listings. Both companies seeking London-based investors appear to have attractive prospects. But they are aiming high. O'Key, Russia's fourth largest food retailer, is seeking to cash in on a shortage of large grocery stores. But some analysts are questioning the newcomer's valuation of $2.9 to $3.3 billion: the bottom of the range would value O'Key at a discount of just 3 percent to Russia's largest retailer X5.
The tentative $4.8 to $5.6 billion valuation of Mail.ru is also raising some eyebrows. But the group – which owns 2.4 per cent of Facebook, and is the first major Russian Internet company to seek a listing – is far from typical. So a success wouldn't necessarily indicate strong appetite for other Russian IPOs.
Investors’ wariness towards Russian IPOs may seem paradoxical.
Other emerging market issuers seem to be successful at tapping rising global investor appetite. But the deluge of new issues also creates competition for available cash. Russia, a volatile oil-fuelled economy which is growing less than half as fast as China’s or India’s, is no longer the exciting BRIC it once was.
Investors have also learnt from experience. Russian IPOs are almost always overpriced. Two-thirds of Russian IPOs are down on their issue price, and just 15 percent have outperformed the Russian market, according to Renaissance Capital. The $2.2 billion Hong Kong listing this year of aluminium producer RUSAL — down 7 percent since January — has done nothing to change this dismal pattern. As long as Russian issuers continue to demand ambitious valuations, they will face a tough sell.
