Moscow Bourse Raises $498 Million, IPO Price at Low End

The Moscow Exchange raised 15 billion rubles ($498 million) in the biggest initial public offering on Russia’s bourse since 2007, pricing at the bottom of its target range.

The deal values the exchange at 126.9 billion rubles, according to a website statement today. The shares were priced at 55 rubles each, the lowest end of the Moscow Exchange’s range of 55 rubles to 63 rubles. The stock, which trades under the MOEX RX ticker, closed unchanged at 55 rubles, according to data compiled by Bloomberg.

The bourse, which is the centerpiece of President Vladimir Putin’s push to turn Moscow into a financial hub, said Feb. 4 that it wanted to raise at least 15 billion rubles selling shares on its own platform. The sale makes it the biggest IPO on Russian markets since OAO Polymetal’s $630 million IPO in 2007, data compiled by Bloomberg show.

“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 today. “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.

The exchange runs Russia’s 50-stock Micex and dollar-denominated RTS indexes and is modernizing its systems to lure more foreign capital. It marketed its shares to investors in the U.S., Europe and Russia. The Micex fell 0.7 percent to 1,508.17 today.

China Fund

The Kremlin-backed Russian Direct Investment Fund, or RDIF, and Chengdong Investment Corp., a unit of Chinese sovereign wealth fund CIC International Co., bought shares in the IPO, two people who also asked not to be identified said. The offering gives the exchange a 30 percent free float, according to today’s statement.

“We have a long way to go,” Dmitry Pankin, head of Russia’s Federal Financial Markets Service, told reporters in Moscow after the shares started trading. “It has to become a real competitor for London, Frankfurt and New York. This is a good sign, an important test that shows that one can list in Moscow, this experience will be useful during the upcoming privatization deals.”

Russia plans to push ahead with a record $10 billion of asset sales this year as it seeks to stem capital flight and pare back the state’s hold over the economy, First Deputy Prime Minister Igor Shuvalov said last month.

Attracting Investors

RDIF invested $80 million into the IPO and attracted $200 million more from other investors, the fund’s chief executive officer Kirill Dmitriev said today in comments broadcast on state television from a conference in Krasnoyarsk. After the investment, RDIF holds a 4.5 percent stake in the exchange, which it plans to keep for three to five years, Dmitriev said by phone today.

“The decision was to do an IPO early before many of the changes take place,” Dmitriev said. “What’s important is that we’re making foreign investors appreciate an IPO on the Russian exchange.”

Shareholders will be subject to a 180-day lock-up period after the offering, according to a Feb. 4 statement.

China Investment Corp. and the RDIF set up a $2 billion fund in June, seeking returns of at least 20 percent on investments in companies benefiting from growing trade between the two countries, according to the RDIF’s website. Of that, 70 percent will be invested in Russia, the rest in China.

Political Matter

BlackRock Inc., the world’s biggest asset manager, bought shares in the Moscow Exchange from RDIF in September, the fund said Sept. 28, without providing details. RDIF had 2.7 percent in July. The European Bank for Reconstruction and Development has a 5.8 percent stake in the exchange, while VTB Group, Russia’s second-largest lender after Sberbank, held 5.6 percent.

BlackRock and Oppenheimer Holdings Inc. bid for shares in the exchange IPO, Vedomosti reported today, citing an organizer it didn’t identify.

Putin said last month the stake sales should happen mainly on Russian exchanges.

The decision to list in Moscow “was more of a political matter,” Anton Rakhmanov, general director at Sberbank Asset Management, which oversees about 80 billion rubles in assets, said on Jan. 29. “Once you limit a listing to a certain geographic territory, you cut off investors who can’t participate due to the regulatory or physical reasons. Right now the goal is to make Russia as popular of an investment destination as possible.”

Retail Investors

About 850 retail investors participated in the IPO, the Moscow Exchange’s Chief Executive Officer Alexander Afanasiev said today in an interview. The biggest investment was $80 million, with investors from the U.S., Asia, continental Europe and the U.K. participating, Afanasiev said. The exchange doesn’t plan to list on any other platforms, Afanasiev said.

“Considering the high demand for our shares, we could have slightly increased the price,” Afanasiev said in a Bloomberg TV interview with Ryan Chilcote in Moscow today. “We didn’t do it because otherwise we could have lost some very good investor names. Our choice was for the quality of the investor base.”

The exchange plans to use its share of the IPO proceeds to upgrade its trading system and to boost the capital of its clearing subsidiary, the National Clearing Center. The bourse, which handles most stock and bond trading in Russia, will start working with Euroclear Bank SA, operator of the world’s largest bond-settlement system, to trade ruble-denominated government debt next month, according to Euroclear.

Trading Reform

The bourse will move to settling trades over two days, or the so-called T+2 settlement, from the current immediate settlement, by the end of 2013, Sergey Sinkevich, the exchange’s head of primary markets, said last year. Russia merged its two competing depositories on Nov. 6 to bring settlement procedures into line with international norms.

The introduction of a central depository may over time undermine one of the exchange’s sources of revenue as it diminishes the need for repurchase transactions since investors no longer have to keep their money with the bourse, Mattias Westman, who helps oversee about $4 billion in Russian assets as chief executive officer of Prosperity Capital in London, said Feb. 12.

The exchange’s nine-month net income rose 22 percent to 6.4 billion rubles 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.

Trading Volumes

Trading volumes on the Micex Index halved in December from a year earlier, while the 30-day average value of trades in 10 Russian companies tracked by Bloomberg in London is about 51 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.

In September, Sberbank raised 159 billion rubles as Russia’s central bank reduced its stake in the country’s largest lender. The company received 2.9 percent of that amount from selling the stock on the Moscow Exchange, with the remainder placed in London, according to a statement from the Moscow Exchange.

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.

Credit Suisse Group AG, JPMorgan Chase & Co., Sberbank CIB and VTB Capital organized the Moscow Exchange’s IPO. Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley, Renaissance Capital and UBS AG’s investment bank were joint bookrunners.

“For long term investors it’s a winner,” Matt Krueger, a portfolio analyst at Global Finance Private Capital in Sarasota, Florida, said by e-mail yesterday. “In the short term there are risks which outweigh the benefits for many potential foreign investors.” Global Finance didn’t participate in the exchange’s IPO.