The talk of a coming boom in Russian IPOs began in 2004. Five companies entered the market then, raising $620 million, according to Mergers.ru. In 2005, their feat was repeated by 13 companies, which managed to raise $4.5 billion. And in the outgoing year, public offerings have already become commonplace: according to Mergers.ru, 22 companies held them. Naturally, the previous record for the volume of funds raised also fell – now the bar has frozen at $17.7 billion. Even if we exclude Rosneft’s IPO from consideration (see the article on page B4), the others account for $7.1 billion. In 2005, only AFK Sistema managed to raise more than $1 billion, and in addition to Rosneft, Comstar and Severstal reached the billion-dollar mark. TMK fell slightly short of this level – $972 million.

Everyone is now talking about a possible IPO, from giants like Rusal to banks in the second hundred. Region analysts have compiled a list of 39 companies that have planned to place their shares in the near future. According to Renaissance Capital, Russian companies will hold 41 stock exchange placements for $31 billion next year. UBS believes that the volume will reach $15–25 billion. Alfa Bank strategists have included 90 companies in the list of candidates for holding an IPO in 2007, and the volume of resources they want to attract is $30 billion. However, Alfa analysts themselves call the scenario in which all 90 companies go public “very optimistic.”

This should also play into the hands of VTB and Gazprombank, which have planned initial public offerings for next year. VTB is planning to sell shares for $4 billion in May-June – this will probably be the largest initial public offering in 2007. Gazprombank top managers have stated that the bank’s IPO could take place in the second half of the year.

While banks represented by Sberbank and less liquid securities – Bank of Moscow, PSB or Rosbank – are represented on the stock market, there are no insurance companies there. RESO-Garantiya may be the first. It intends to sell 15–25% in May–June.

According to Renaissance Capital, in 2006 Russia ranked 5th in the world in terms of IPO volume (9th if secondary placements are taken into account). Among countries with transition economies, Russia is second only to China with its $59 billion.

Banks and newcomers

Sberbank will be the star in 2007. The Central Bank has already registered an additional issue of 3.5 million shares, which are now worth $12 billion. But Rosneft's record will most likely hold: the bank's managers and officials say that securities worth 200 billion rubles will be sold. The craze for shares in developing countries that has swept investors should help Sberbank place shares for such a sum without collapsing the quotes. One of them, the Chinese Industrial and Commercial Bank (ICBC), set a world record for IPO volume in October: $21.9 billion.

IPOs of companies with no analogues on the market are likely to be a hallmark of the new year, giving investors a chance to participate in the rapid growth of the non-resource sector of the economy.

Next year, Compulink, a group of companies that produce computers and software, and provide systems integration and IT consulting services, is scheduled to go public. So far, only the IBS holding has placed 33% of its shares among private investors, but has not yet gone public. The Sitronics concern, a subsidiary of AFK Sistema, which is involved in high-tech business, is also preparing an IPO. There are no companies that produce microelectronics, chips, and consumer electronics, let alone on the stock exchange – there are only a few of them in the entire country.

In February, the IPO of Polymetal, the largest silver producer and also the second gold mining company in Russia, is scheduled. Eurochem is preparing to become a public company instead of Uralkali, which refused to place its shares.

The consumer sector is expecting a large replenishment (according to Alfa Bank, up to 30 companies) on the stock market in 2007. Organizers have already been appointed for placements of baby food producers Nutritek, sugar producers Prodimex, alcohol producers Sinergiya, retail chains Lenta and Dixy, the owner of shopping centers RTM, and luxury real estate developer RGI International.

According to Alfa Bank, the second largest sector in terms of funds raised ($6 billion) after banking will be energy companies. Many new generating companies will enter the stock exchange.

Growing pains

But despite the records, the placements are not going entirely smoothly. Over the course of the year, two large companies – Magnitogorsk Iron and Steel Works (MMK) and Uralkali – cancelled their placements at the last minute, having already collected applications from investors. Many saw the case of Uralkali as a sign of a weakening love for new shares.

Experts predicted that this was bound to happen sooner or later and there were many alarm bells ringing.

The securities of most companies that entered the market in 2005 rose in price less than others in the year after the placement. Some issuers raised the placement price. As a result, Amtel Vredestein's capitalization fell by half in the year since the IPO, while the RTS index grew by 38%. Last year, there were more such examples: Trader Media East quotes have fallen by 19.2% to date, Raspadskaya mine by 18.7%, and Severstal by 11.6%, although the RTS index is churning out record after record. Due to the seller's exorbitant appetites, Morgan Stanley refused to complete the placement of Cherkizovsky, where it was the lead manager.

“The success of an IPO will be largely determined by pricing policy; investors will become more demanding,” Alfa Bank analysts write in their annual strategy.

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