| The largest Russian state concerns are trying to sell tasty morsels to foreign investors The boom in the IPO market of Russian companies became the central topic at the Russian Economic Forum in London, which began yesterday. Another Russian state corporation has expressed a desire to become a public company by placing its shares. Following Rosneft, VTB, KamAZ and RAO UES of Russia, the state transport monopoly, Russian Railways, intends to raise several billion dollars. It is noteworthy, however, that Russian Railways is planning to place on the market a non-existent, but obviously most profitable “subsidiary”: according to the head of Russian Railways, Vladimir Yakunin, investors will be offered up to 49% of the shares of the freight transportation company. Obviously, state corporations understand that such a rapid growth of the stock market will end sooner or later, just as the powers of their leaders may end, which means that it is necessary to extract dividends from the favorable environment as soon as possible. Therefore, it is no coincidence that the site of the Russian Economic Forum was chosen for discussions about IPOs - it is located in the world's largest investment center - London.
Money for monopolies
Russian railways needed an IPO, as Mr. Yakunin said yesterday, to solve the problem of a lack of investment resources. At the same time, he offers to place securities to the company that is obviously the largest of those planned for the spin-off, and the most attractive. According to investment bank Morgan Stanley, if the market situation is favorable, the capitalization of the freight subsidiary could reach up to $9 billion. Consequently, the sale of a non-controlling stake in its shares on the stock market will make it possible to attract up to $4.5 billion, which is enough for the necessary renovation of the carriage and locomotive park.
A similar goal is pursued by RAO UES of Russia and its director Anatoly Chubais. He once again told investors in London that he hopes the government will approve the idea of holding an IPO of the ten largest generating companies. This will allow the Russian energy sector to invest in the construction of new capacities, since the demand for electricity is growing at a very strong pace.
“The very fact that state-owned companies are becoming public is noteworthy,” notes MDM Bank analyst Anton Zatolokin. -- Firstly, the stock market is expanding, new securities are appearing, and secondly, issuers are attracting additional resources. This corresponds to the course of bringing state-owned companies to the public offering market.”
However, skeptics regarding IPOs point out that before talking about placement in principle, it is necessary to develop a detailed investment program with specific projects. Otherwise, we will be talking about simply selling shares to foreign buyers and “eating” the funds received from the IPO, at best. But neither RAO UES nor Russian Railways have such programs and projects; there are only some declarative goals and very conditional approximate calculations. In this regard, obviously, the state is hesitating: at the end of last year, at a meeting of Vladimir Putin with key ministers, it was de facto announced that the start of the third stage of railway reform must be postponed for at least a year, officially - to solve the problem of cross subsidies, and consideration of the problems of investing in the electric power industry was postponed from March of this year to June. Obviously, for a state that is actively fighting high inflation, a flood of foreign money without the subject of their investment is quite disastrous.
A drop for each
The capitalization of state corporations will increase not only at the expense of large investors, but also at the expense of the population. As is known, Vneshtorgbank and Rosneft also intend to attract money from the public by selling a share of their shares to private citizens. As Oleg Vyugin, head of the Federal Financial Markets Service, said at the economic forum yesterday, everyone will be able to buy some Rosneft at Sberbank branches. “This is one of the most likely schemes (for the sale of company shares to citizens. - Ed. ),” Mr. Vyugin said yesterday. Exactly what volume of shares will be provided to the population and at what price is still unknown. Yesterday, Mr. Vyugin did not rule out, however, that the securities will be slightly more expensive than during the placement itself, but “in general, there are no technical problems for the sale of the oil company’s shares through Sberbank.”
The parameters of Rosneft's upcoming IPO in July this year, as the head of the company Sergei Bogdanchikov said yesterday, will be decided by the board of directors in June. According to Vremya Novostei, during the IPO, Rosneft, consolidated with its main subsidiaries, plans to place up to 30% of its shares on the stock exchange. Experts estimate the value of the company at the placement at $58-70 billion. At the same time, as Vremya Novostei’s source in Rosneft says, the main purpose of the placement is to pay off the state’s debt of $7.6 billion for the purchase of 10.7 % shares of Gazprom. If more funds are raised, they will be used to pay off the remaining debts of the oil company (about $25 billion).
As required by Russian legislation, at least a third of the placement must take place on Russian exchanges. Presidential aide Igor Shuvalov recalled this yesterday, telling Interfax that Rosneft’s IPO should take place simultaneously in two markets: both in Russia and abroad. As Mr. Bogdanchikov stated, the London Stock Exchange, which, as is known, is very popular among Russian issuers wishing to issue their shares for free circulation, will most likely act as a foreign trading platform.
Experts interviewed by the newspaper found it difficult to answer what the population's contribution to repaying Rosneft's debts would be. “There have been no precedents in the market for the sale of shares to the public during an IPO, and it is very difficult to assess the demand for oil company securities among individuals,” Mr. Zatolokin believes. — However, citizens’ awareness of financial instruments is growing; since the beginning of the year, there has been an influx of funds from the population into mutual funds. It is quite possible that they will be interested in the opportunity to buy some oil securities.” A lot will depend on how Sberbank behaves in this situation, which accounts for not only the most extensive branch banking network, but also more than half of all deposits of Russians. According to Ms. Orlova, “if Sber actively advertises the purchase of Rosneft shares in its branches, then perhaps they will actually buy the securities.” Ms. Orlova considers the prospects for the sale of VTB shares among the population less clear. “Even if Russians are ready to buy some shares of Rosneft, seeing how much oil costs in the world, they are unlikely to decide to invest money in the development of a bank, even a very large one.” As VTB told the newspaper yesterday, the bank does not yet have a clear mechanism for exactly how shares will be sold to the public.
Analysts polled yesterday agree that a lot will depend on the issuing companies themselves. “The lion’s share of the placement will still go to institutional investors; the sale of shares to the public will most likely turn out to be pure populism,” said a representative of a large investment bank, who wished to remain anonymous. “An application for the sale of shares to private individuals is a good way for top managers of companies to acquire part of the shares during an IPO and thus legally become their co-owners.”
True, Rosneft insists that the company’s securities will be available to everyone. “We are obliged to work with any shareholder, be it an American bank, be it an old woman in a workers’ village, be it an international specialist in stock trading,” Mr. Bogdanchikov said in March. When he went to President Vladimir Putin in Novo-Ogarevo last week to report on the progress of preparations for the IPO, the head of Rosneft emphasized that not only its managers, but also ordinary Russians would be able to buy shares in the oil holding.
Be careful, the doors are closing
Taking into account the initial public offering of Rosneft in 2006, Russia may become one of the three largest countries in terms of IPO volumes. This forecast was expressed yesterday by Ilya Sherbovich, president of the investment bank Deutsche UFG. “If Rosneft’s IPO takes place, then based on the results of 2006, Russia may become one of the three largest countries in terms of initial public offerings after the United States and Great Britain,” he said. In 2006, 25 IPOs of Russian companies are expected for a total amount of 17.5 billion dollars. According to him, experts also analyzed the potential of Russian companies in the field of initial public offerings. Now in Russia only large players with a capitalization of an average of $ 2 billion are launching, Mr. Shcherbovich said. All over the world, initial public offerings are carried out by medium-sized companies. with a capitalization of $500 million. In Russia, experts counted 158 companies with such capitalization, including 51 in the raw materials sector, 35 in the telecommunications and media business, 27 banks and 17 retail enterprises.
However, not all market participants are full of the same optimism. Many of them compare the current IPO boom in Russia with the euphoria in the US high-tech stock market of the late 1990s and early 2000s. As you know, the sharp growth ended in such a large-scale crisis that the world only recently moved away from it. In addition, Russian companies conducting IPOs now are actually overvalued, pessimists say. One of them, former presidential adviser Andrei Illarionov, generally called the IPO of Russian state-owned companies “the scam of the century, before which even the loans-for-shares auctions of 1995 pale.” Natalia ROMANOVA, Denis REBROV, Nikolai GORELOV |
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