Moscow Exchange Said to Seek at Least $500 Million in IPO

The Moscow Exchange, Russia’s biggest bourse, plans to raise more than $500 million in an initial public offering, according to a person with knowledge of the matter. The shares will only trade in Moscow and not London as previously proposed, two people said.

The exchange, which runs Russia’s 50-stock Micex and dollar-based RTS indexes, will sell stock through its platform in the Russian capital and also abroad, though not on the London Stock Exchange, said the people, who asked not to be identified, citing a so-called quiet period before the IPO.

“The demand in London would’ve been higher, but this is an image-related decision,” Dmitry Malykhin, who oversees $30 million in Russian assets as chief investment adviser at Moscow-based hedge fund Da Vinci CIS Opportunities, said today. “If the Moscow Exchange’s London-listed shares were more liquid than the Moscow ones, it would’ve looked strange.”

Three people familiar with the matter had estimated on Jan.16 that the sale would take place as early as February and raise $1 billion, valuing the exchange at about $4 billion. The offer comes as the Moscow exchange loses ground to foreign bourses in trading volumes and issues from Russian companies.

‘Mixed Feelings’

Credit Suisse Group AG, JPMorgan Chase & Co., OAO Sberbank CIB and VTB Capital are organizing the IPO, the exchange said today in an e-mailed statement. Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Renaissance Capital and UBS AG’s investment bank are joint bookrunners.

Investor education for the IPO started today, according to a bookrunner note to investors obtained by Bloomberg News. The expected pricing, settlement and start of trading for the Moscow Exchange share sale is the first quarter, according to Goldman Sachs’s investor e-mail obtained by Bloomberg News.

“Right now, we have mixed feelings about the IPO,” Vladimir Bragin, head of research at Alfa Capital in Moscow, which manages $2.9 billion, said by phone. “It’s a big question whether this will be a profitable investment. The reality is that over the past few years, issuers have preferred to go to London instead of Moscow.”

Trading Volumes

Trading volumes on the Micex Index halved last month from a year earlier, while the 30-day average value of trades in 10 Russian companies tracked by Bloomberg in London is about 57 percent higher than the same companies’ Moscow-listed shares. The comparison includes OAO Gazprom, OAO Lukoil and eight other companies with at least five years of history in both markets.

Shares will be sold by one or both of the exchange’s units -- Micex Cyprus Ltd. and Micex-Finance LLC -- in Russia, the U.S. and certain offshore locations, according to today’s bourse statement. All the current exchange shareholders aside from Russia’s Central Bank will be able to sell shares in the IPO through Micex Cyprus, according to the exchange’s statement.

A Moscow Exchange spokesman declined to comment on the IPO’s valuation by e-mail. The Micex retreated 0.2 percent to 1,537.66 by the close in Moscow.

Growth Potential

The exchange’s nine-month net income rose 22 percent to 6.4 billion rubles ($211 million) from the same period a year earlier, according to an e-mailed statement on Jan. 18. The revenue for the same period climbed 37 percent from a year earlier to 15.9 billion rubles, according to the statement.

“There’s a big potential for growth here,” Kirill Bagachenko, who manages about $3 billion in Russian equities at TKB BNP Paribas Investment Partners in St. Petersburg, said by phone. “A very small part of the Russian population participates in the market, so this can be an interesting investment.”

Currency Trading

The exchange posted a record amount for daily foreign exchange trading last month, as volumes for all currency instruments reached $23.34 billion, according to a Dec. 25 exchange statement.

Russia-domiciled companies sold about $8.2 billion of stock in 2012, the most since the $22.4 billion raised in 2007, data compiled by Bloomberg show.

In September, OAO Sberbank raised 159 billion rubles as Russia’s central bank reduced its stake in the country’s largest lender. Out of the sale, 4.6 billion rubles, equivalent to 2.9 percent, was sold on the Moscow Exchange, with the rest placed in London, according to the Moscow Exchange’s statement.

OAO MegaFon, Russia’s second-largest mobile-phone provider, has rallied 19 percent in London since raising $1.7 billion in November in the biggest IPO by a Russian company in three years.

Pending IPOs

Russian companies including OAO Russian Helicopters and freight company NTS Holding Plc are considering selling shares in London given MegaFon’s performance.

Companies in Eastern Europe raised 10.5 billion euros ($14 billion) from share sales in 2012, compared with 11.6 billion euros a year earlier, according to data compiled by Bloomberg. Citigroup Inc. is ranked first in managing the sales, the data show.

The Moscow Exchange, created in 2011 when the Micex Stock Exchange merged with the RTS Exchange, offers stock, bond, currency and futures trading. Russia merged its two competing depositories on Nov. 6 to bring settlement procedures into line with international norms.

The Moscow Exchange intends to transition this year from immediate settlement of transactions to a system where traders are allowed a number of days to complete deals, conforming with norms at exchanges such as Deutsche Boerse AG.