In the slowing Russian economy, the Internet industry has stood out as a rare source of growth.
So when the country’s two biggest Internet companies said last week that they’re looking to list shares on OAO Moscow Exchange, it marked one of the biggest victories yet for the local bourse in its bid to pry Russian equity trading away from London and New York. The companies, Yandex NV (YNDX) and Mail.ru Group Ltd., have until now only had their stock trade overseas.
The Moscow bourse has been cutting into London’s trading advantage since officials began a push to boost volume last year. Trading in the shares of the largest Russian companies was just 16 percent higher in London than Moscow last week, down from a gap of about 50 percent a year ago, data compiled by Bloomberg show.
The information-technology industry “is one of the few growth drivers in Russia,” Timur Nigmatullin, an analyst at Moscow-based research firm Investcafe LLC, said by phone Feb. 21. “Yandex and Mail.ru’s listing in Moscow will not only increase volumes, but will also attract many investors, who see Russia’s Internet sector as a good place to invest.”
Yandex, the online search engine whose market share is twice that of Google Inc.’s in Russia, said on Feb. 20 that revenue will rise as much as 30 percent this year, the same day that Mail.ru (MAIL), an operator of social networks and online games, predicted sales growth of as much as 24 percent.
The forecasts come even as Russia’s economy grew 1.3 percent in 2013, less than half the previous year’s pace. The International Monetary Fund last month cut its 2014 growth forecast for Russia to 2 percent from a previous 3 percent, the biggest reduction among major economies.
The Moscow bourse transitioned to a two-day stock settlement system last year and is on track to make equities available through Euroclear Bank SA in July to lure trading from offshore platforms. Shares of the exchange gained 2.1 percent on Feb. 21, rising for the first time in five days. The stock extended the advance today, rising 0.3 percent to $65.48 rubles at 7:11 a.m. in New York. The Micex Index added 0.2 percent to 1,490.36.
The Moscow Exchange aims to reduce the volume of Russian equities trading abroad to between 20 percent and 25 percent of the total by 2015, from about 40 percent in 2013, Alexander Afanasiev, chief executive officer at the exchange, said in a June interview.
“Russian foreign companies are returning to Moscow and the exchange benefits from it directly: the more listings, the more revenue,” Andrey Braginskiy, a spokesman for the Moscow Exchange, said by phone Feb. 21. “The aim is to have most of Russian equities trading volumes here in Moscow.”
Mail.ru shareholders including Russian billionaire Alisher Usmanov, China’s Tencent Holdings Ltd. (700) and South Africa’s Naspers Ltd. (NPN) support the plan to list shares in Moscow in addition to London, Chief Financial Officer Matthew Hammond said on a Feb. 20 conference call.
Moscow-based Mail.ru wants a local stock listing for investor convenience and to encourage inclusion on Russian equity indexes, Hammond said. The size of the offering will be in the “low tens of millions” in U.S. dollars, and will occur in the “near future,” he said.
The Russian listing proposal came as Mail.ru, part owner of VKontakte, the country’s largest social network, predicted slowing revenue growth this year as the pool of people not already online shrinks. Mail.ru increased for a third week, gaining 0.6 percent to $39.87 in London and trimming its decline this year to 11 percent. The stock gained in 2012 and 2013.
The Hague, Netherlands-based Yandex is also weighing a Moscow listing and favors inclusion in Russian indexes as well, Vice President Greg Abovsky said on a conference call Feb. 20. The company, which reported on Feb. 20 fourth-quarter profit that missed analyst estimates, was the biggest decliner on the Russia-US Bloomberg gauge last week, slumping 9 percent to $36.66. It is down 15 percent this year after doubling in 2013.
Yandex jumped 55 percent on its first day of trading on Nasdaq Stock Market in May 2011 after raising $1.3 billion in an IPO that sold above the proposed price range.
Yandex was raised to “buy” from “hold” at Sberbank CIB, an investment unit of OAO Sberbank, Russia’s biggest lender, on Feb. 21. The 12-month target price was lifted 18 percent to $50.13 a share, Sberbank CIB’s analyst Anna Lepetukhina said in a report.
Qiwi Plc gained 0.2 percent last week to $39.99, trimming its decline this year to 29 percent after more than doubling last year. Qiwi, an electronic-payment operator, became the first American depositary receipts to be available on the local bourse last June, BNY Mellon said in a statement that month.
The Bloomberg Russia-US Equity gauge fell 2.5 percent last week to 91.49. The Market Vectors Russia ETF (RSX), the largest dedicated Russian exchange-traded fund, also declined 2.5 percent to $25.66, while RTS futures advanced 0.2 percent to 131,720 in U.S. hours Feb. 21. The RTS Volatility Index, which measures expected swings in the stock futures, was little changed today at 25.87.
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