Merrill Lynch - looking for a hundred solid people for its Moscow office

Nomura, Merrill Lynch Make Their Moves

Nomura Holding recently announced the opening of its Russian office. Nomura’s Russia office will be a rather limited structure, staffed with five investment bankers that will not provide any investment banking services. According to the office director, Nomura plans to provide IPO advisory services to companies in Russia and serve as an intermediary between Asian investors and Russian firms. Market experts think that it may take Nomura up to two years to create a comprehensive investment banking entity in Russia.

Another big player in international markets - Merrill Lynch – recently obtained a broker/dealer license from the Russian authorities. This is rather unusual development for an investment bank, according to a number of Russian experts. Similar to Nomura, Merrill Lynch maintains an office in Moscow, which was first opened in 2004. Instead of waiting for a rather extended period to get a comprehensive banking activity license, the company decided to get authorized to serve as a broker/dealer, which is a slightly easier process.

Russian market experts believe that Merrill is targeting institutional investors and wants to find some big borrowers in Russia, to start competing with Deutsche Bank and Morgan Stanley. However, market analysts note that this remains a tedious task. Goldman Sachs, Lehman Brothers have already been in Russia for a while and have obtained their licenses, but they are not exactly visible. They also cite the fact that Merrill will need to have at least one hundred investment banking experts for their team; it took about one year for Morgan Stanley to build their team of seventy employees in Russia.

Did Sberbank Force Employees to Participate in its IPO?

Lots of Russian media outlets are taking a closer look at Sberbank’s recent “popular” IPO. Russian business journalists got wind of a management directive that obliged personnel at each branch to buy two shares for the price of 89,000 rubles. This is a ridiculous sum considering average salaries in Russia.

As one Russian reader commenting on the Internet pointed out, five employees would have needed to pool their money just to buy just one share. Sberbank management has vigorously denied these charges. Nonetheless, the Vedimosti daily notes that Sberbank employs 242,000 people, and the official statement indicates that 46,000 individual investors subscribed. So, everyone is wondering – how many employees contributed to those 46,000?

Texas Pacific Group Becomes the First Direct Investment Fund to Move into Russia

This week there was an announcement that one of the world’s largest direct investment funds - the Texas Pacific Group (TPG) – is coming to Russia. Although some other big players (like Goldman Sachs Capital Partners, CVC, Permira, Apax) are contemplating working in the country, TGP is already here. The news received mixed reaction from market professionals. TGP wants to invest in multi-billion dollar companies, but entities of that magnitude are scarce, unless TGP wants to invest in some of the state-owned firms. But other financial analysts argue that Russian oil and gas, media, IT and financial sector companies may all get a piece of the TPG pie soon.

Carrefour has plans to open new supermarkets in Russia

Is Russia’s Food Retail Sector Overheated?

The process of consolidating Russian industries is continuing – this time with the arrival in the country of Carrefour, the second-largest food retailer worldwide. Market analysts believe that major Russian hypermarket chains (O’Key, Lenta, Karusel) are prime acquisition targets for Carrefour’s M&A process. Initially Carrefour will begin with three sites in the southern part of Russia (Rostov and Krasnodar), but eventually may grow to 70-80 stores within 3-5 years. There are three big publicly traded retailers in Russia - Seventh Continent, Magnit and X5 - all of which are trading at 30-times earnings.

Hermitage Capital CEO William Browder

These numbers make investors very cautions. This was spelled out by Bill Browder, the manager of Hermitage Capital, at a recent Adam Smith conference in London: "How are you going to make money from a company that is trading at over 30-times earnings? I don't know." X5 is trading GDRs at LSE, Magnit and Seventh Continent in domestic markets. The number of public companies will grow too. This year four more players announced plans for IPOs – Patterson, Dixie, Lenta and Victoria.

Foreign Investments – What They Mean for Russian Business

PricewaterhouseCoopers released the results of the poll of management of 51 Russian companies from the Forbes-200 list. The questions were related to various aspects of business. The poll questions concerning foreign investment were answered as follows:

- 77% think that foreign investments are important for expansion of international and regional presence
- 48% of respondents - for getting access to innovative technologies
- 34% - for managing political risks
- 17% for accumulating assets to fund retirement.

A truck produced by Russian manufacturer Kamaz

New IPO Candidates for 2008, 2009

- Sedmoy Kontinent – 25% float at LSE – 2008
- Regional Alliance – a new ambitious project of Troika Dialog – in 5 years, after completion of M&A processes with regional insurance companies, it will capture 20% of the Russian insurance market and issue an IPO
- Kamaz - truck manufacturer delayed its IPO to 2009
- Fesco, a shipping container firm - delayed its LSE IPO until 2008
- Reso Garantiya insurance company – will announce their plans for an IPO in May

You can read the original post from Mr. Kuznetsov’s Equity Financing in Russia Blog here. The views expressed here and on his blog are Mr. Kuznetsov’s personal opinions, and do not necessarily reflect the views of his employer.