Corporate Financing Analysis - The 2017 Window For Russian Floats Flings Open - 24 APR 2017


After struggling for access for some time, Russia is opening up its IPO market to overseas investors once more and, significantly, it is doing so at a time when all the fundamentals are in place for a spike in issuance over the coming quarters. As a result, we expect to see a strengthening flow of listing activity over the remainder of H117 and into the second half of the year, with foreign equity capital market (ecm) investors, especially those from developed markets, buying up an increasing portion of deals. As we move towards the business end of the year, however, we expect activity to level out once more owing in part to the pent-up demand to issue stock passing its peak.

First Out Of The Gates

The deal that kicked off the recent bout of optimism surrounding Russian floats was the RUB21.1bn (USD335mn) listing from children's retailer Detsky Mir, completed in early February. The float of a third of the firm's stock valued the company at RUB62.8bn (around EUR991mn) at the time of the deal. In our view, the IPO was significant for a number of reasons. Firstly, it was not only the first Russia IPO of 2017 but it was also the second largest to complete on the Moscow Stock Exchange (Moex) in three years. Secondly, with Credit, Goldman Sachs and Morgan Stanley serving as the bookrunners at the helm, it represented the country's first share sale fully marketed to overseas investors since the onset of the conflict with the Ukraine, which began back in 2014 (in fact, the last Russian float to use any Western bank as bookrunner was hypermarket chain Lenta, which floated back in February 2015). Lastly, and perhaps most significantly, around 90% of the deal was snapped up by overseas investors - an early gauge of the level of interest in such a deal from foreign ecm investors. In our view, even though the float itself failed to impress markets - with the IPO coming across the finishing line priced at the lower end of its indicative range - all of these factors combined appear to have given the green light for further go-public deals to be made. Indeed, we expect a steady flow of Russian firms, which have been waiting patiently over the last couple of years to raise fresh funds but were forced to postpone such deals indefinitely in the wake of the Ukraine conflict and the onset of sanctions from the West, to finally come out of the woodwork. We note that, while we are not expecting the floodgates to open, we are expecting a significant uptick in the volume of deals from what we have seen over the past couple of years. Market chatter is now rife with speculation over which listings will be next. From the private sector we expect to see an increase in deals from those which have been forced to postpone before along with a host of new opportunistic issuers. Billionaire businessman Oleg Deripaska is reportedly preparing to send his EN+ holding company public in a bumper USD2.7bn fundraising and is targeting doing so in London - an overseas listing destination which has long proven popular with Russia firms looking to raise ecm funds. Meanwhile, closer to home, footwear retailer PBuv Rossii is targeting a public listing, e-commerce firm Ulmart is also thought to be eyeing a float before the year-end and software firm C1 is targeting a deal. It remains to be seen which deals will make it to market and which will not but for now one thing is certain, while data from Zephyr, a Bureau van Dijk product, show that there has only been one successful float completed this year, it is evident that the Russian IPO backlog is poised to unload and we expect to see the volume of listings to soon surpass the two deals completed in both 2014 and 2016 and potentially the six notched up in 2015 too.

Plenty To Come
Russian IPO Volume By Deal Volume
Source: Zephyr, a Bureau van Dijk product

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