Cranes near the Kremlin in Moscow (Photo by: Liebherr Construction)
In this post, Vladimir Kuznetsov, director of equity finance at the Finam Investment Company in Moscow, notes more foreign investment in Russia's real estate market and the release of two major reports on capital investment for modernizing Russian infrastructure. Mr. Kuznetsov also rounds up recent announcements from Russian banks, breweries, and food distributors about their plans to issue IPOs.
-The Editors
Morgan Stanley continues its drive for acquisitions of Russian developers. Morgan Stanley's Special Situations Fund III has recently acquired a minority stake in RBI development holding. According to experts, this is the biggest deal of its kind thus far in Russia – some estimate it at about $200 million. This is the third transaction for Morgan Stanley in this sector, which previously acquired 10% of RosEvroDevelopment and minority shares in Moscow-based commercial real estate developer RGI International. Morgan Stanley recently announced that it plans to increase direct investments in Russia with a focus on Russian developers. For this purpose the bank plans to add about $1 billion to its fund.
In another real estate market development, it has become known that Starr Investments Russia, controlled by Maurice "Hank" Greenberg, the former CEO of American International Group Inc., will invest hundreds of millions in Russian real estate with a focus on prime office space, residential housing and hotels, all of it initially in Moscow.
Click on the extended post to read more.
Raising Capital to Modernize Russia's Infrastructure - Two Points of View
Last week saw the release of two interesting papers from analysts that I strongly recommend to anyone interested in investing in Russia. The first one is produced by Roland Nash, head of research at Renaissance Capital, titled “21st Century Perestroika – The Russian Investment Boom” which clearly analyzes the issue. While readers may want to read the whole thing here, I would like to point out two quotes. One of them attempts to define the role of sector where I am working now – Russia's financial services industry:
"Russia is in the odd position of having both a large excess supply of capital and an equally large excess demand. …. the vortex created by large excess demand and large excess supply of the same resource in the same economy generates the incentive structure that encourages its own solution. … the situation is prevented from clearing by equally enormous logistical barriers. In the private sector, the logistical log-jam is the financial sector which is still incapable of intermediating between demand and supply effectively. In the public sector, [the barrier] is Russia’s bureaucracy …. What is perhaps the most exciting trend in Russia today is that both of these barriers are being dismantled simultaneously."
"Investment, both public and private, is set to boom as the financial sector and the state seek to intermediate the funds being generated by the natural resource sector into the rest of the capital-constrained economy."
The other major report released last week, this one from the Turku School of Economics in Finland, is titled "A Future Role of Foreign Firms in Russia's Strategic Industries". This paper is good attempt to evaluate Russia’s key industries and to analyze the growing risks created by the expanding political economy in Russia for the foreign investor.
UK mining executive Peter Hambro (Photo by: Interros.ru)
Peter Hambro Mining and the International Finance Corporation
The International Finance Corporation (IFC) has agreed to a joint investment proposal with the Anglo-Russian mining group Aricom, a subsidiary of Peter Hambro Mining. IFC plans to buy $20 million of newly-issued ordinary shares in the company.
Russian Beers, Not Bears
Russia is the world's fifth largest market for beer consumption, trailing only China, the U.S., Germany and Brazil. Russia is also one of the world's fastest growing markets for the alcoholic beverage. SABMiller PLC plans to invest $170 million to build its second brewery in Russia.
Baltika, a popular Russian beer brewed in St. Petersburg
The plan calls for construction by 2009 of a major brewery in the city of Ulyanovsk. Currently SABMiller is Russia's fifth largest brewer with 6% of the market, and this is far off from the leaders - Baltic Beverages Holding, InBev, Heineken NV and Efes.
New IT and Telecom Stock Exchange for Russia?
As an add-on to my recent post, the news leaked out of Russia’s Communications Ministry that it still plans to set up a new stock exchange for IT companies. According to these plans, the exchange will be similar to NASDAQ. This is sort of enigma – so far no one knows any specifics and the real information has not been disseminated. Although the need for such venture is obvious, once again, it is difficult to comprehend integrating this new exchange into the current Russian equity market. What adds some spice to this news is that one of the first issuers will be a Russian investment fund of information and communication technologies with planned authorized capital of about $56 million.
More Banking Sector IPOs
We witnessed several announcements this week about new IPOs from Russian banks. Generally speaking, there are two reasons for IPOs in this sector:
(i) striving to establish a public brand name image –this is especially true for the major banks with government shareholders;
(ii) acute need for cash or for strategic investors – these are for mid-capitalized banks. While VTB24 has slightly delayed plans for its IPO, we have learned about the following:
NOMOS Bank appointed Morgan Stanley and Deutsche Bank as managers of its IPO planned for later this year. This would signal a major breakthrough in the banking sector, as NOMOS is 100% privately owned.
Zenit Bank – some reports suggest that this bank is planning an IPO for late 2007.
Vozrozhdenie Bank – IPO in May 2007.
Other IPO Candidates
Reso Garantyja Insurance Company has named the international managing partners for its IPO – Deutsche UFG, Dresdner Bank and Morgan Stanley. Sometime in June it plans to list 20% of its equity and it hopes to raise $300 million.
Magnitogorsk Iron & Steel Works (MMK) – London Stock Exchange and Moscow, ABN Amro, Morgan Stanley and Renaissance Capital are the lead managers.
Dixy Group – Russian food retailer - IPO of 23% of its equity either on domestic markets or on the London Stock Exchange in April 2007.
EuroChem - fertilizer producer, possibly planning an IPO for 2007.
Technoserv A/C - IT system integrator has announced its desire for an IPO.
Vester food retailer – plans an IPO in 2011.
OST ALKO alcohol producer – has delayed its IPO until late 2008.
The views expressed in this post are the personal opinions of Vladimir Kuznetsov, and do not necessarily reflect the views of the Finam Investment Company. You can read the original post at Mr. Kuznetsov's blog, Equity Financing in Russia.
