The Moscow Exchange’s $498 million debut on Russian markets will probably fail in enticing companies to list exclusively on the bourse, according to Otkritie Financial Corp. The shares slid below their offer price in intraday trading for a second day.
The initial public offering of Russia’s main stock and fixed-income exchange was the biggest on in Moscow since 2007. The Kremlin-backed Russian Direct Investment Fund invested $80 million in the IPO and attracted $200 million from other funds, Chief Executive Officer Kirill Dmitriev said Feb. 15. Chengdong Investment Corp., a unit of Chinese sovereign wealth fund CIC International Co., also invested, according to two people with knowledge of the deal who asked not to be named.
The IPO, which priced at the bottom of its target range, “was a political, rather than a market IPO,” Vladimir Tikhomirov, chief strategist at Otkritie, the third-biggest trader of Russian equities, said by phone from Moscow Feb. 15. “What Russian companies learned from this is that if they want to raise money their best bet is still foreign markets, unless of course there is a big state-owned fund that is willing to buy their shares domestically.”
Shares of the exchange lost as much as 1.5 percent today before trading down 0.1 percent at 54.94 rubles as of 1:47 p.m. in Moscow. They ended their first trading day Feb. 15 unchanged at the IPO price of 55 rubles, after falling as much as 0.4 percent, data compiled by Bloomberg show.
The nation’s 50-stock Micex Index slid 0.8 percent last week, while the Bloomberg Russia-US Equity Index of the most-traded Russian shares in the U.S. tumbled 1.3 percent to a one-month low. Futures on Russia’s dollar-denominated RTS Index fell 0.5 percent to 156,550 in U.S. hours Feb. 15.
The exchange, created out of a merger between the Micex and the RTS, is at the center of President Vladimir Putin’s push to make Moscow a global financial center. The bourse has been modernizing to lure companies and investors deterred from the local market by rules such as the requirement for trading accounts to be set up through local custodians and the practice of immediate settlement.
Of the $5.8 billion in IPOs undertaken by Russian companies in the past two years, $689.1 million was raised exclusively on the Moscow market, according to data compiled by Bloomberg. The average value of Russia’s biggest companies is about 51 percent higher in London than in Moscow, separate Bloomberg data show. Companies seeking foreign listings domicile abroad so that they can get around Russian law requiring them to also sell shares domestically.
RDIF, the Kremlin’s private equity fund, attracted other investors to the exchange before the IPO, according to a Feb. 15 statement. BlackRock Inc., the world’s biggest asset manager, the European Bank of Reconstruction and Development, Cartesian Capital Group LLC and China Investment Corp., known as CIC, have all co-invested in the bourse, CEO Dmitriev said.
“We set an example for many Russian companies,” Moscow Exchange Chief Executive Officer Alexander Afanasiev said in a Feb. 15 interview. “Our target was to prove it is quite possible to make a very successful IPO locally. We got a really broad range of investors. It’s a very good example of the potential.”
OAO MegaFon, Russia’s second-biggest mobile phone provider, mining company Polymetal International Plc. and oil producer RusPetro Plc., domiciled in the U.K., are among Russian companies that chose to sell shares abroad in the past two years. State-controlled OAO Sberbank, the nation’s biggest lender and an organizer of the Moscow Exchange IPO, issued both local shares and global depositary receipts in its 159.3 billion-ruble ($5.3 billion) secondary offering in September.
“The company has no track record, it’s a risk,” Elena Loven, who helps manage 70 billion euros as a fund manager at Swedbank Robur, said by phone Feb. 15. “We can say it’s not cheap. On the other hand, fast-growing companies are expensive everywhere, in Russia and abroad.” Swedbank Robur’s funds purchased shares in the IPO and sought to buy at the low end of the range, she said.
Last week’s exchange IPO was the biggest entirely on the local market since OAO Polymetal, Polymetal International’s Russian unit, raised $630 million in 2007, data compiled by Bloomberg show.
“Russian companies will still be eying listing on foreign exchanges as their first priority,” Igor Nuzhdin, an analyst at Alfa Capital Management, which manages $2 billion in equities and fixed income, said by phone from Moscow Feb. 15. “There is not enough demand on Russia’s domestic market, while foreign investors still prefer depositary receipts.”
The Bloomberg Russia-US stock gauge slid 0.8 percent to 102.93 Feb. 15. The Market Vectors Russia ETF, the biggest U.S. exchange-traded fund that holds Russian shares, decreased 1.1 percent to $29.99 Feb. 15, dropping 1.3 percent last week. The RTS Volatility Index, which measures expected swings in the index futures, rose 1.4 percent to 22.11.
Yandex NV, Russia’s biggest Internet company, rallied 3.6 percent to $25.59 last week, the steepest jump in the Russia-U.S. gauge.
“Russian Internet provides the best opportunity to gain exposure to the consumer story,” Boris Vilidnitsky and Roman Arbuzov, analysts at Barclays Plc in London, wrote in a Feb. 15 report where they rated Yandex the equivalent of buy in initial coverage. “Yandex is best positioned to benefit from Internet and advertising growth.”
Oil for March delivery fell 1.5 percent to $95.86 a barrel in New York Feb. 15. Brent oil slid 0.3 percent to $117.66 a barrel on the London-based ICE Futures Europe exchange. Urals crude declined 0.1 percent to $116.06.
The ruble was little changed at 30.12 per dollar in Moscow todayu. The currency was steady at 34.6658 against the dollar-euro basket used by the central bank to minimize swings in the ruble that hurt exporters.
Futures on the currency showed it steady at 30.259 per dollar Feb. 15.
United Co. Rusal, the world’s largest aluminum producer, lost 0.2 percent to HK$4.74 in Hong Kong trading as of 10:30 a.m. local time. The MSCI Asia Pacific Index gained 0.6 percent.