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Russian ecm November 6, 2006
1. Investment banks index wars 2. 35 companies will raise $19bn in 2007, Deutsche Bank 3. RTS to launch a Russian NASDAQ 4. Market players to be licensed 5. Gazprombank finally to sell off media, petrochemical assets in IPO 6. Owner of the Chelyabinsk zinc plant (CZP) will sell 3% of their shares 7. Chemical firm share price collapses after dilutive share issue 8. Dymov Sausage to IPO 9. Eastern Property Holdigns increases capital by $125m 10. Far Eastern Sea Shipping Company will IPO 11. Mosenergo places in favour of Gazprom 12. OGK-5 sale a big success 13. Pharmaceutical producer to IPO 14. Pipemaker TMK IPOs 15. Russian commodity exchange plans to launch wheat futures 16. Severstal sets IPO price 17. Sistema-Hals IPO price range set 18. Uralkaliy decreases 9-month dividends by a third following flood 19. Uranium company to IPO 20. WBD owners sell small stake
Investment banks index wars Monday, November 6, 2006
A veritable war of indexes is breaking out as Two of Russia's top investment banks launched new indexes, better to track Russia's increasingly sophisticated growth, that will compete with the proliferating number of indexes tracking Russia.
Renaissance Capital has teamed up with emerging market gurus Morgan Stanley that puts together the widely quoted MSCI index - a benchmark for emerging market stock market preformace - to produce the MSCI
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Renaissance Index of TOP Liquid Russian Stocks (the MSCI Rencap Index, for short).
Likewise, Troika Dialog launched a third tier index that tracks 50 companies that are on the up and up but currently fall below all the investment bank's radar screens.
The new indices come in the wake of several new indexes launched on international exchanges that are becoming increasingly interested in Russia.
A battle is developing to become the market currency when it comes to a shorthand way of expressing just how Russia's stock markets are fairing. For example, the RTS index is still the most widely quoted index number this is to ignore the fact that Russia's other leading exchange MICEX has long since outgrown the RTS in terms of size and volumes of trading.
At the end of last month the London Stock Exchange launched the FTSE Russia IOB Index that also tracks liquid Russian stocks that are traded both on international and domestic markets.
And in August the Deutsche Boerse, Germany's Frankfurt-based stock exchange, launched the DAXglobal Russia index, that tracks the performance of the 17 most-liquid domestic blue-chips that trade in American Depositary Receipts, or ADRs, on various international exchanges.
Troika will have an easier time. Second and third tier stocks have been fashionable several times in the past and dubbed "the great unpronounceables" by the doyen of the small cap company Eric Kraus (now running the Nikitsky Russia/CIS Opportunities Fund).
Kraus pioneered the Sovlink second tier index, which consistently out performs the bluechips during Russia's period equity booms, such as that of the start of this year. However, the second tier has a tendency to tank spectacularly during the periodic down turns and the Sovlink index has never really caught on.
Troika's decision to focus analyst attention on third tier stocks is indicative of a fundamental change developing in the way investors invest in Russia. for almost all of the 1990s it didn't matter what you invested into in Russia, but when. Returns were spectacular, but ephemeral and prone to political risks.
However, after the run up to Russia's all time high on the RTS this May of over 1,700 the consensus is that the valuation of Russian companies has almost caught up with their international peers and the huge "catch up" gains of simply investing in bluechips are gone and banks and funds are hunting for new strategies.
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The fact that these two banks have focused on opposite ends of the indutrial spectrum suggests the debate is still on, but also that the investment pool is broadening to include more conservative investors who think that 10% return is also pretty spectacular - something that most veteran Russian investors would sniff at.
35 companies will raise $19bn in 2007, Deutsche Bank Monday, November 6, 2006
Deutsche UFG President Ilya Shcherbovich told an investment conference last week that he believes 35 companies will IPO next year raising a total of $19bn.
This year a total of 19 companies are expected to float on domestic and international markets raising a total of $18bn by the end of the year.
As of the end of October a total of 13 companies had already debuted their shares on the exchanges, raising a total of $14bn, including the OGK-5 float last week (but not TMK's IPO). There have also been 16 secondary offers, raising a total of $2.5bn.
And the number of comapies floating at home is slowly rising. Next year a third of the companies' IPOs will take places on Russian exchanges, compared with 13% in 2006, in terms of number of IPOs, and 4% in terms of cash raised.
Deutsche bank estimates Russia has a total of 80 private companies with capitalisations of more than $500m, most of which are not listed.
Alfa Bank listed the immient IPOs in a note:
The issues that are currently known to be either about to close, are in the midst of preparing an IPO, or are in the midst of active marketing to investors include:
• OGK-5;
• Chelyabinsk Zinc;
• Wimm-Bill-Dann - placement of existing shareholder equity;
• Sistema-Hals (real estate);
• TMK (Russia's largest pipe manufacturer);
• Severstal - existing shares;
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• Raspadskaya (coal producer);
• Pharmstandard (pharmaceutical company);
• Kazkommertsbank.
"The two largest issues will be Severstal (about 15% of its equity, today valued at around $1.5 bln) and pipe maker TMK. The latter company is thought to be targeting about $1.1 bln. The last planned issue of that size, Uralkaly, was pulled when management was made aware that investors would only support the issue at a sharply reduced valuation. Both Severstal and TMK are currently in the midst of that dialog process," Alfa said in a note.
RTS to launch a Russian NASDAQ Monday, November 6, 2006
As part of the ongoing effort to deepen the Russian equity capital markets the RTS plans to set up a NASDAQ of Russia, a platform to trade shares in high tech companies with small capitalisation.
The new platform will be launched sometime next year and is designed to dovetail with the Kremlin-backed programme to launch a venture capital industry that will unlock Russia's intellectual richest. The state has earmarked $500m to provide the seed capital for a dozen venture capital funds that will finance high tech ideas and bring them to market. The first of this money was due to be disbursed this month.
RTS CEO Oleg Safonov has rolled out a number of initiatives in the last year but says don't expect any Russian high tech IPOs anytime soon. The platform will launch with about a dozen companies.
There are about 60,000-80,000 small companies with capitalisation between $60m and $100m according to official statistics. However, high tech has been almost totally ignored for most of the last ten years with a handful of high profile exceptions.
Market players to be licensed Monday, November 6, 2006
The stock market watch dog, the Federal Service for the Financial Markets (FSFM) wants all investors on the Russian stock exchanges to be licensed, the service said last week.
The FSFM has been working hard to improve the market infrastructure and will introduce draft laws to licenses professional investors by the end of this year, a spokesman said.
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The regulation covers all licenses, excluding the licenses for the collective investments market, where amendments to the existing legislation are needed, Vladislav Streltsov, deputy director of the FSFM said.
At the moment market participants receive a three-year license which is replaced by an indefinite licenses on renewal. The new system would add more teeth the historically toothless watchdog.
Gazprombank finally to sell off media, petrochemical assets in IPO Monday, November 6, 2006
When the newly elected President Vladimir Putin put the kybosh on media tycoon Vladimir Gusinsky in 2000 it was Gazprom that did the dirty work.
The state-owned gas giant unexpected called in two small loans to commercial television station NTV, effecting the take of the biggest and most influential broadcaster in Russia and bringing down a storm of international protest.
Gazprom is a gas company and freely admitted that it knew nothing about the media business, however, repeated promises to sell off the specially created media arm Gazprom Media failed to appear time and time again. Until now.
The company's bank said last week it would sell off both Gazprom Media and Sibur, a petrochemical concern the company retook after Putin's election. Gazprombank said it was preparing both companies for IPO sometime in the new year, Deputy CEO Alexander Sobol said last week.
Sobol said that the both companies were strategic assets and they would account for between 25% and 30% of the bank's consolidated profit this year. He also said the bank planned to increase the capitalisation of both companies before they were floated, probably in London.
Currently Gazprombank owns 95.13% of Gazprom Media and 75% of Sibur, with the parent company owing the rest.
Gazprombank is also due to IPO sometime in the spring.
Owner of the Chelyabinsk zinc plant (CZP) will sell 3% of their shares Monday, November 6, 2006
The owner of the Chelyabinsk zinc plant (CZP) Andrei Fedorov and Vadim Shvetsov announced they would sell 33% of their shares in an IPO slated for the start of November.
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The company is just about to start a road show in the latest of a string of IPOs scheduled for the next couple of months.
The company set an indicative price at $127.5-$155 per share and $12.75- 15.5 per global depositary receipt (GDR), the company said. One GDR represent 10 shares. The final offering price will be announced on November 7, the company said.
Analysts are keen on the company as the price of zinc, along with many of the other metals, has been soaring in recent years: price of the metal grew 114% over the last ten months of this year to reach $4,070 per ton by October 26. The company has 60% of the domestic market.
The capitalisation of the company has risen on the back of soaring prices and has risen from $500m in September to $800 by the end of last week. The indicative price puts the value of the company's share capital at $650m - $790m and it will provide an over-allotment option amounting to 1,910,250 GDRs to lead managers of the offering.
The company is owned by Netherlands-registered NF Holdings B.V. with an 87.12% stake in the Plant. NF Holdings B.V. belongs to Luxemburg- registered Arkley Capital owned by Russian businessman Andrei Komarov. Chelyabinsk Zinc Plant is a part of Russia's ChTPZ Group.
Some analysts expect the companies valuation to break the $1bn boundary at the upcoming IPO, whereas more conservative estimates put the company's valuation at between $740m and $920m following the placement.
The company has chosen Credit Suisse as book runner for the offering and Alfa Bank, HSBC and Troika Dialog as lead managers, according to earlier reports.
Chemical firm share price collapses after dilutive share issue Monday, November 6, 2006
The shares of Nizhnekamskmeftekhim collapsed, falling by 23% in a day after the company said its board had approved a 25.7bn share issue worth $955m at RUR1 a piece.
The shares issue reperestns a 16-fodl increase in the number of sharesare to be distributed amongst existing shareholders in proportion to their current shareholding. The company has scheduled an EGM for December 11 to consider the issue.
Aton said in a note: "We expect the company's secondary placement to dilute minority holdings to some extent, as we doubt all minority shareholders would execute their rights."
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The company is currently 75.6% controlled by the TAIF group, a big investment group in Siberia.
Troika said in a note: "We can see no economic rationale for issuing additional equity in such amounts, even considering the massive investment program realized by Nizhnekamskneftekhim; the company can easily attract money via debt as it has low leverage and a $5 bln credit line from Sberbank."
Dymov Sausage to IPO Monday, November 6, 2006
The Moscow based sausage marker Dymov said it was consolidating its assets ahead of an eventual IPO in the next 3-5 years, the company announced last week.
The company will start producing international account standard accounts from this year.
The group has production facilities in Moscow, Krasnoyarsk and Vladivostok. In 2005 revenue in Vladivostok was at $92m , in Krasnoyarsk $27m and in Moscow $76.3m. In 2010 revenues are expected to surge to $123.5m , $81.8m and $284.5m, respectively.
Eastern Property Holdigns increases capital by $125m Monday, November 6, 2006
Russia's first ever listed real estate fund, Eastern Property Holdings (EPH), raised a fresh $125m last week through a second placement of shares.
The company plans to use the money to expand its activities. The company is listed on the Swiss exchange and offered 1.39m shares at a face value of $90 a piece in an issue that was more than four times over subscribed.
Trading began today when a greenshoe offering of another 208,696 shares is likely to be taken up.
Managers at the company will be pleased as their initial offering was blighted by the arrest of Yukos owners Mikhail Khodorkovsky, which cut their expected uptake in half.
However, with investments in assets like Romonvsky Dvor, the Berlin House and a stake in Mosmart all performing very well life has gotten easier for the fund.
Far Eastern Sea Shipping Company will IPO
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Monday, November 6, 2006
The third largest shipping fleet operator in Russia, Far Eastern Sea Shipping Company (FRESCO) will IPO in London next spring the company said last week.
The company said that up to 24% of the company will go under gavel to raise an estimated $190-240m for the company.
FRESCO is the biggest transporters of containers in Russia and ranks number 39th in the world, operating over 80 ships with a deadweight of over 1m tonnes.
Shipping has been a fast growing sector and the Kremlin has been focusing its attention on undoing transport bottlenecks that are a growing impediment to economic growth. The state is also planning to create its own shipping national champion through the merger of Sovkomflot and Novoship sometime next year.
FRESCO's revenue has risen steadily, lifted on the rising tide of economic growth and enjoyed revenues of $247m and a net profit of $53m over the first half of this year, according to the company's international standard accounts.
The Industrial Investors group headed by businessman Sergei Generalov controls some 82% of the company. The rest of the company's stock is scattered amongst private investors and some funds. Currently the company has a market capitalisation of $583m on the RTS.
The state held a 19.8% in the company until last years when the owners attempts to persuade the company to sell on the London Stock Exchange failed. IN the end the state sold the stake to Industrial Investors group at auction.
The company recently borrowed $300m from ING to boost its holdings in rail, new port terminals and general development of the company's operations.
Mosenergo places in favour of Gazprom Monday, November 6, 2006
UES board of directors voted to issue new shares of Mosenergo in favour of Gazprom at a EGM on October 30, allowing the state-owned gas company to take over one of Russia's biggest and richest generating companies.
The motion was initially tabled at the end of September, but despite media speculation, the company played its card close to its face.
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Gazprom has made no comment on the share placement, however, it is widely believed the gas giant has ambitions to own more of Russia's power genertors.
OGK-5 sale a big success Monday, November 6, 2006
The privatisation of Rusisa's power assets got off to a great start last week with the float of the generating company (genco) OGK-5. The placement commanded a price of $0.009 close ot the top en of the price range set earlier of $0.076-0.095 per share
Russia watchers had feared the company would be gobbled up by one of the several strategic players chasing it. Gazprom and Interros were both in talks with the management on the possibility of buying out the endire XXXX statek on offer. Italy's ENI was also interested in snapping up the first genco to go on the block at the start of Russia's last but one large scale sell off.
UES is selling off stakes in all its power generating and distribution assets in an effort to finance the $81bn the government plans calls on for investment into the sector. Russia's power production is running dangerously close to the demand and UES CEO Anatoly Chubais is predicting more black- and brownouts this winter.
Gazprom is particularly interested in power generation as 60% of the fuel burnt in Russia's power stations is gas the company would like to free up for the more lucrative export market.
The sale of 14.4% in OGK-5 collected a landmark $459m with no one investors walking away from the placement with more than 1.1% of the company. The placement was eight-times oversubscribed, according to UES.
"Today was a strategic step in electricity reform that has proven that what we have done for the last few years is correct," crowed Chubais at a news conference.
Chubais refused to name the bidders, but the EBRD said it was one buyer, although it got less than it was asking for.
The placement is important (this was not an IPO as some OGK-5 shares are already traded as some of the assets that when into creating the company were already listed and simply converted during the consolidation process) as UES has not decided on a final mechanism for selling off stakes in the more than two dozen gencos and discos (distrbution companies) that will go on sale over the next two years. The placement of OGK-5 was testing of the water and that water looks comfortably warm now.
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Pharmaceutical producer to IPO Monday, November 6, 2006
Leading pharmaceutical producer Pharmstandard sell up to 25% of its shares in an IPO before the end of this year, the company said last week.
Pharmstandard is Russia's largest producer of pharmaceutical products and expects revenues of $300m by the end of this year. Sales were $200m in 2005. The value of the company at the time of floatation is expected to be close to the $1.5bn mark and may top $2bn, say experts.
The company plans to offer GDRs to international investors and common shares to domestic investors simultaneously. The companies is looking to float on the London Stock Exchange and on the RTS as well as MICEX. Pharmstandard has appointed Citigroup and UBS A.G. as joint global coordinators of the issue.
Set up in 2003, the company has five plants and produces over 240 products. The company has assets in Oktyabr in St. Petersburg, Tomskkhimfarm in Tomsk, Leksredstva in Kursk, Pharmstandart-Fitofarm-NN in Nizhny Novgorod and Tyumen plant of medical equipment.
Company officials say they are expecting growth of 30% a year with profits growing at double that speed for several years to come.
Pharmstandard was established by Profit-House, subsidiary of Millhouse Capital that belongs to oligarch Roman Abramovich and united various pharmaceutical assets into a single holding. The majority shareholders are expected to sell part of their stakes in the IPO, including the general director Victor Kharitonin, who is believed to be the majority shareholder.
The company plans to spend the proceeds of an IPO on acquisitions, promotion of existing brands and creation of new ones. In August, the company acquired pharmaceutical producer Masterlink.
Pipemaker TMK IPOs Monday, November 6, 2006
Russian Pipemaker TMK successfully IPO'ed last week, raised $1.069bnin the IPO, including $97.2 mln from the option exercise. A total of 180m shares, or 20.6% of the company, were sold. The GDRs were priced at $21.60 per share and surged by 17% in early trading to $25.25. Local shares were priced at $5.4 at the top end of the price range. Following the placement the free float of the company increased to 23% of its charter capital, whichi includes 2.65m shares helpd by employees and 18m shares offer to the international arrangers as part of the over allotment package.
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The bookrunners were Credit Suisse, Dresdner Kleinwort and Renaissance Capital. Following the IPO the company's free float amounts to 23% of the company's charter capital.
Chairman of TMK's board of directors Dmitry Pumpyansky took his stake in TMK to 100% ahead of the IPO, by buying out Dalecone Limited, controlled by the owners of MDM Bank, Sergei Popov and Andrei Melnichenko, who held 33% of the company.
Pumpyansky's TMK Steel took out a $780 million loan from TMK to pay for the 33% stake. TMK Steel will use the proceeds from the IPO to repay the loan.
TMK was set up in 2001 and is Russia's largest pipe producer and exporter and the world's second largest pipe producer. TMK manages the Volzhsky Pipe Plant, (Volgograd Region), Seversky Tube Works (Sverdlovsk Region), Sinarsky Pipe Plant (Sverdlovsk Region), Taganrog Metallurgical Works (Rostov Region).
Russian commodity exchange plans to launch wheat futures Monday, November 6, 2006
Russia's National Mercantile Exchange (Namex) will launch a wheat futures market next June, the director of Namex Sergei Naumov said last week.
Trading will be in both imported wheat and domesticly produed wheat, based on physical delivery.
Imported wheat must be delivered to Black Sea ports on free-on-board basis. Domestic wheat delivery are to grain elevators in Russia's major grain producing regions.
The legal basis of the trading will be ready by the end of this year, according to Namex and the market operation rules thrashed out by next spring.
Currently 14 companies have been pre-approaved to participate in the trading. Namex will also hold seminars to train potential participants in wheat futures trading.
Namex was founded in June 2002 includes two large grain companies amongst its fouders, OGO and Razgulay as well as the Grain Union, which is made up of the country's major grain producers and millers.
Severstal appoints independent director Monday, November 6, 2006
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As the Russian top-six steel player heads into its IPO the company is trying to burnish up its corporate governance image and appointed two independent directors. Former Chief Executive of BP's Refining and Marketing business sector Rolf Stomberg's was the first released last week, who will become the an independent director at Severstal.
Severstal is expected to offer up to 25% of this stock to investors in an IPO at a price of $11-$13.5 this month.
Currently Stomberg's is on the Supervisory Board of Lanxess AG and holds a number of posts in Boards of Directors of large international companies, including Senior Independent Director of Reed Elsevier Plc and Smith & Nephew Plc, as well as the post of Member of TNT NV's Supervisory Board.
Severstal's General Director Alexey Mordashov has been criticised for the way he runs the company following the collapse of a plan to merge the company with European steel market Arcelor. Investors complain about the lack of transparency at the company and analysts say the proposed valuation Mordashov has put on the company will be hard to achieve.
Mordashov said recently that two extra chairs will be added to the board table and the number of independent directors could be raised as high as five. The company is currently choosing candidates with international reputations and expects the selection process to be finished by the end of next year.
Amongst the appointments will be an independent director to chair the board of directors as well as three independent directors to oversee the company's audits.
The company has been going through a reorgamation of management in recent weeks. On November 1, the board decided to give Mordashov his old job as general director again. Mordashov has been serving as the company's owner and chairman of the board, but the new job puts him back in the trenches again. Mordashov stepped down as general director in 2002.
At the same time the board voted to end the mangament agreement with the Severstal group management company, controlled by Mordashov, in a move designed to increases transparency, effective from December 16.
Severstal sets IPO price Monday, November 6, 2006
Steel producer Severstal set its IPO price to value the company at between $10.2bn and $12.5bn - or $11 to $13.5 per share - last week.
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The company has begun a road show to sell the company to international investors, who are thought to have reservations about buying into the company.
The order book closes on November 7 and the company will place 85m shares, or 9.1% of the company with another 1.4% as bank options.
The valuation is considerable less than the value put on Sverstal during the failed merger bid with European steel company Arcelor this summer, which had a $16bn price tag on Severstal, or $15 per share.
Analysts expect the final price to coming in on the law side because of lingering corporate governance concerns, concerns the company is belated trying to address.
Trust said in note: "The company might attract another US$650-850 mln during the additional placement. We would like to note that the investors will be offered the shares almost without any premium to the current price. As of yesterday, company's capitalization, according to RTS information was $11.63bn, this corresponds to the forecasted capitalization of the group, based on the share price closer to the upper limit of the price range."
Sistema-Hals IPO price range set Monday, November 6, 2006
Russian real estate company Sistema-Hals set the price range of $9.60-11.45 for its GDRs and $192-229 for the ordinary shares last week.
The coampny is part of AFK Sistema group, a leading telecoms company and hopes to become the third listed real estate developer with an IPO this month.
The company is hoping to raise $390-460m from the placement, including an additional placement option for the arrangers. Cushman & Wakefield estimate the value of the company's assets at $1.5bn
Some 70-80% of the funds raised will be used to develop the existing business and acquisition of new companies.
At present, the Company's authorized capital totals RUB 404.376 mln and is split into 8087525 ordinary shares of RUB 50 par. Sistema-Hals also plans to float an additional issue in the volume of 5 mln ordinary shares.
Uralkaliy decreases 9-month dividends by a third following flood Monday, November 6, 2006
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Uralkaliy may cut its dividend payment by 35% at the EGM on December 14 after a flood caused Russia's biggest fertiliser company to close one of its mines.
The company's potash production was badly damaged after it was unable to contain flooding at one of its main mines, the BKPRU-1 mine.
The mine's capacity is 1.5m tons from the total production in 2005 of 5.4mn tons of potash chloride. The coampny said that the production for this year could be reduced by as much as a fifth and the accident could also negatively affect next year's results.
The company IPO'ed only last month and the market reacted to the news sending the stock down 11%, to $1.65 per share.
Chairman Dmitriy Rybolovlev controls some 77.9% shares of the Company.
Uranium company to IPO Monday, November 6, 2006
Another piece of the emerging national champions picture emerged last week when the head of Techsnabexport that runs Russia's federal urainniam exports said that a national uranium company will be set up and then sold in international markets.
Like the power and aviation sector reforms, the national champion will be created out of the existing state-owned uranium mines in the next few years.
All the national champions have IPO plans, that will be used to both raise development cash, but also as a compromise by the Siloviki that is driving the programme as an IPO brings in the market element that purely state run companies miss.
Minority shareholders of the traded companies (including Priargunsk) targeted for consolidation will be offered stakes in the new holding company.
Sergey Kiriyenko, head of Rosatom, said earlier this year that the new state holding would not include uranium processing and enrichment facilities. The new holding was due to be registered on November 2, but has been delayed.
WBD owners sell small stake Monday, November 6, 2006
The owners of Russia's leading dairy and juice producer Wimm Bill Dann sold a total of 10% of their shares last week.
The shares were offered in the price range of $37.5-39/share and were worth a total value of about $165m. However, bankers say that as the shares were
http://businessneweurope.eu 15 bought by private funds, it is hard to say what price they actually fetched or if this sale will increase the liquidity of WBD's stock.
Prior to the sale the free float of the company's shares was 9.8% according to Renaissance Capital's estimates, and should have more than doubled following the placement.
The free float in the ADRs is even higher at 32%, but a third of this of this (ie 10% of the total) is held by French dairy producer Danone, which is unlikely to sell.
The average turnover in the company's shares in October was $3.85m.
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