PE-backed Moscow Exchange IPOs(2)

The private equity-backed company’s listing will seek to bolster investor’s confidence in Russia’s capital markets – an uncertain endeavour, says Baring Vostok’s Costyashkin.

The Moscow Stock Exchange, Russia’s largest public trading platform, has set a price range at RUB55 – RUB63 (€1.35 – €1.55; $1.83 – $2.10) per share for its flotation.  

This would value the company, which plans to list on its own platform on 15 February, at up to $4.6 billion. The sum is not far off London Stock Exchange’s market capitalisation, which hovers around $5.3 billion. 

The Moscow exchange counts at least one private equity firm as a minority shareholder. US-based Cartesian Capital Group and the state-backed Russia Direct Investment Fund (RDIF) jointly invested in the company in July 2012, acquiring 2.5 percent and 2.7 percent respectively. BlackRock then bought an undisclosed stake from RDIF in September 2012. The largest shareholder is Russia’s central bank, which owns 24 percent of the company. 

BlackRock declined to comment on whether the IPO would allow it to exit its investment in the exchange. Cartesian could not be reached for comment. 

The Moscow Exchange was formed in 2011 through the merger of Micex and RTS, two of Russia’s largest trading platforms. It hopes to raise $500 million through the IPO, which will be used to upgrade the company’s IT technology and raise capital levels at its clearinghouse.   

The move is widely seen as an effort to shore up Russia’s standing as a financial market, in the hope that a successful listing would entice large companies to list in Moscow rather than on foreign exchanges. It echoes recent calls by president Vladimir Putin for upcoming privatisations of state assets to take place in Russia. 

But despite a number of private equity firms being involved in this flotation, observers contacted by Private Equity International remained doubtful about whether Russian buyout groups, or other companies with investments in the country, would be tempted to follow suit. 

“Generally speaking IPOs represent good exit opportunities for private equity funds: Baring Vostok Funds have had eight exits through or after IPOs on NASDAQ, LSE and AIM since inception. But I assume Russian IPOs will remain few and difficult until the market strongly recovers, and most of funds’ exits will be strategic or block sales,” said Andrey Costyashkin, partner and chief operating officer at Baring Vostok Capital Partners

One of the main reasons for investors’ defiance, he commented, is that Russian stock performance has repeatedly proved disappointing post-IPO: as at 16th January 2013, three quarters out of the 45 stocks that have started to float between 2007 and 2012 have underperformed since then, according to Bloomberg data.

“Negative performance was due to a number of reasons: over-pricing, failure to deliver promised results, economic slowdown and internal corporate problems, especially after explosive growth through M&A,” Costyashkin said. 

Another large fund manager based in the country stressed that, to the extent that IPOs were used as an exit route by Russian firms, they would almost invariably happen in more established markets. “IPOs are kind of available for good companies, and totally shut for average ones. But to the extent that they happen, I think that London, for energy and resources listings, and New York, for Media and Telecom listings, will remain the most sought after exchanges for future IPOs.”

Trading volumes on the Moscow exchange fell by around 40 percent in 2012, to around RUB9.1 trillion.