TPG-Backed Lenta IPO May Raise $1.26 Billion as Market Sours

Lenta Ltd., the Russian hypermarket chain, said shareholders including U.S. leveraged buyout fund TPG Capital may sell as much as $1.26 billion of shares in a London initial public offering, at a lower price than some organizers had pitched.

The retailer’s owners will offer a 22 percent stake at $9.50 to $11.50 per global depositary receipt, five of which will represent an interest in one share, in the IPO, Lenta said in a statement today.

Lenta got demand for all shares offered in the IPO, including an over-allotment or “greenshoe” option, according to two people familiar with the transaction. They asked not to be named because the results haven’t been formally announced. The joint bookrunners were to be granted a 15 percent over-allotment option, according to Lenta.

Lenta, headquartered in St. Petersburg, is seeking to list at a time when appetite for riskier developing-nation assets has soured as the Federal Reserve reduces monetary stimulus. Russia’s economy has slowed, threatening retailers. The market value indicated for Lenta’s IPO is lower than earlier estimates.

“After meeting potential investors this month, the bookrunners had to lower the proposed price because the market is poor and Lenta will be traded less actively than OAO Magnit,” said Yulia Bushueva, who helps manage about $500 million at Arbat Investment Services Ltd. in Moscow, referring to Russia’s largest retailer.

Market Value

The pricing would give the company a market value of $4.09 billion to $4.95 billion, Lenta said. VTB Capital, an underwriter and a co-owner of the retailer, previously valued the company at $5.3 billion to $6.2 billion, three people with knowledge of the matter said Feb. 4. Deutsche Bank AG gave a preliminary valuation for Lenta of as high as $7.6 billion, according to Interfax news service.

The IPO books will close Feb. 27, and Lenta will start trading on Feb. 28, the term sheet shows.

The European Bank for Reconstruction and Development is also a shareholder, with a 21.5 percent stake, while TPG holds 49.8 percent and VTB Capital has 11.7 percent, according to today’s statement. Lenta isn’t selling new shares in the IPO.

The retailer’s sales rose 31 percent last year, while the margin on earnings before interest, taxes, depreciation and amortization was 11.4 percent, beating Magnit.

“Any new offering should imply a discount to industry leaders with a proven track record,” said Alexey Krivoshapko, who helps to manage $4 billion at Prosperity Capital Management in Moscow. That means the fair price for Lenta should be below $4.8 billion, he said.

Lenta has 77 warehouse-sized hypermarkets and 10 supermarkets in 45 Russian cities. It is seeking to double selling space in three years.

JPMorgan Chase & Co., Credit Suisse Group AG, VTB Capital, Deutsche Bank, UBS AG and TPG Capital BD are managing the sale.

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