Less than one month into 2014, Russian companies are already lined up to almost match the $10.6 billion of share sales that took place last year as retailers seek cash for expansion.
Companies from Detsky Mir, the nation’s largest retailer of children’s goods, to hypermarket chain Lenta Ltd. and shoe retailer Obuv Rossii are planning initial public offerings. OAO Gazprombank, which estimates there are $9.3 billion to $12.5 billion worth of deals pending, says the consumer, banking and technology industries will lead the surge in sales. Russian retail sales rose at a faster pace than economists predicted in November as unemployment fell and wages grew.
“Russia is still seen as a very attractive consumer market, the average income has increased so much,” Erik Depoy, an equity strategist at Gazprombank, said in a Jan. 9 telephone interview from Moscow. “A lot of that will reflow back into the economy. If we assume that liquidity conditions globally will remain plentiful, the primary market will have a decent year.”
Russian stock offerings are picking up as the $2 trillion economy recovers from the slowest growth since a recession in 2009. OAO Magnit, Russia’s biggest food retailer, rallied 91 percent last year, the best performer on the benchmark Micex index, as the company benefited from a five-fold surge in average pay over the past decade.
The Bloomberg Russia-US Equity Index of the most-traded Russian equities in the U.S. rose 0.9 percent to 98.89 at 11:57 a.m. in New York as futures on the RTS Index added 0.1 percent to 139,240. Russia’s Micex Index lost 0.5 percent to 1,469.64 by the close in Moscow.
Russia is forecast to be Europe’s biggest retail market by 2018 as chains increase their footprint across the country, according to Euromonitor research. The economy’s expansion rate is set to accelerate to 2.5 percent this year from 1.4 percent in 2013, according the Economy Ministry.
Emerging-market initial share sales will gain speed this year with economic conditions “steadying” and the reopening of mainland China exchanges in 2014, Ernst & Young LLP said in an e-mailed report. That will result in at least 50 IPOs in the first quarter, it said.
Analysts’ expectations for more Russian share offerings come at a time when UBS AG forecasts Chinese IPOs will accelerate to a record pace. There will be some 60 to 80 IPOs each month from March to June, Chen Li, chief China equity strategist at UBS, said at a briefing in Shanghai.
Detsky Mir, owned by billionaire Vladimir Evtushenkov’s AFK Sistema, has selected Credit Suisse Group AG and JPMorgan Chase & Co. to help it sell shares later this year, according to two people familiar with the matter. The retail chain sells children’s products from diapers and Lego sets to inflatable paddling pools.
Obuv Rossii, based in the Siberian city of Novosibirsk, plans to raise as much as 2 billion rubles ($60 million), owner and Chief Executive Officer Anton Titov told reporters in Moscow Oct. 30. The retailer sells shoewear from high-heeled evening pumps to water-proof boots.
Lenta, controlled by U.S. leveraged buyout firm TPG Capital, plans to sell shares in London next month, with a possible secondary listing in Moscow, two other people familiar with the matter said
“I expect to see total issuance closer to $10 billion this year because investor interest in the emerging-market asset class will remain low until after the summer and Russia has some tough economic issues to deal with,” Chris Weafer, senior parter at London-based Macro Advisory, said by e-mail on Jan. 13. “The most attractive issues will be in the fast-growing technology, consumer and service sectors.”
There is a “very sizable list” of some $30 billion new issues from the private sector, waiting for the right time to sell, Weafer estimated. The state’s privatization program, which originally planned to sell up to $15 billion of equity annually for six years, has now been substantially delayed until at least 2016, clearing the way for non-state companies to list, he said.
“How much of the $30 billion is actually sold will certainly be dictated by the big investment funds’ appetite for emerging-market risk,” Weafer said. “The key factor will be the valuation applied to the issue and in what sector of the economy is the company operating.”
The Bloomberg Russia-US gauge fell, led by Yandex NV. American depositary receipts of OAO GMK Norilsk Nickel, the world’s biggest producer of the metal, rallied the most in three months after an Indonesian ban on mineral-ore exports spurred a jump in the price of the metal.
The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, dropped 1.3 percent to $27.15. RTS Volatility Index, which measures expected swings in the index futures, rallied 4 percent today.
United Co. Rusal, a Moscow-based aluminum producer, fell 0.9 percent to HK$2.33 in Hong Kong trading.