Rushing to market with Russian IPOs

With 2011 seeing Russian companies push into both global equity and capital markets, with a range of Eurobond placements and IPO’s, Business RT spoke with Angus Campbell from London Capital Group about the key issues.

RT: What’s driving the companies’ interest in capital markets?

AC:“Well there is any number of reasons why anyone would want to float on the stock exchange.Of course, it is not all plain sailing.A new company to the market has to abide by certain rules and disclose certain information.But overall, and particularly with Russian stocks, Russian companies, where often a few individuals will hold a substantial stake in those companies, it means that they can realise a significant amount of money when the stock comes to the market, and that will specify exactly what their shareholding is worth.But also it means that they can raise funds, so international investors that can have access to the UK markets can, of course, invest in these growing companies and get exposure to the Russian market.And not only that, it does increase the company’s profile, it also produces the possibility of merger and acquisitions, and opens up the way for them to possibly take over competitors in other geographical areas, within the same industries.So there is a number of reasons why any company would want to float on the capital markets.”

RT: There have been ten Russian companies attempting to IPO in London this year. But only five of them managed to go ahead. And four of them were priced at the bottom end of the range. Why is this?

AC:“Well it’s purely because investor appetite, firstly this year, is somewhat diminished.We have quite an uncertain economic outlook, from a global point of view.We’ve had sovereign debt concerns in Europe.So investors are very, very, particular about where their investment, how their investments are priced, at the moment. In particular any new companies coming to the market, and historically we have seen that, often, some of these Russian IPO’s have been particularly highly valued.So often investor appetite has been not as good as expected, and that has meant those IPO’s that have been coming to market have been priced at the bottom end, and some of these other companies have actually withdrawn their IPOs altogether.With increased volatility in the market, so that is understandable that new investors in new companies coming to the market want to ensure they’re getting the valuation absolutely correct.”

RT: What do you think is preventing the Russian companies from placing shares on the domestic market?

AC:“Well the domestic market in Russia is not so well known from a global standpoint.The market in London geographically is a central position, it’s well known, it’s well regulated.In Russia commercial and regulatory laws are still not really quite as well established as they are in other western markets, particularly in the UK.So for any big company, any big Russian company that is looking to increase its profile, London is a good place to list.Of course, that doesn’t mean that it’s the only place to list.In Asia, in Hong Kong the stock market is seeing Russian companies list there as well.Generally on the whole it would seem that valuations are set a little higher in Asia, so that’s becoming increasingly popular for Russian markets.But it is primarily to increase their profile and list on a market that is well regulated and can hold the company in high esteem.”

RT: How do you see investor sentiment for the rest of the year?

AC:“Well sentiment seems to be improving just a little bit.We have certainly seen from the markets point of view a large sigh of relief in respect that Greece has passed it’s austerity measures, and is unlikely to default, regardless of what S&P say.So that is important from a sentiment point of view.And some of the Russian companies that have pulled their IPOs could very easily return later in this year, possibly in 2012.and so there is hope that the IPO market will continue to recover, and, of course, we have seen that IPO valuations hit the highs that they hit in 2007.So the outlook isn’t too bad, and, of course, just recently, we have had two very successful IPOs.We have had Yandex, and more recently Global Ports.So as long as the market volatility calms down a little bit, and as sentiment improves there is every chance that the IPO market could recover as well.”