Air China executives opening the London Stock Exchange

LSE Pays More Dividends in the Face of More Competition

Interestingly, while IPO activity declined in London, the LSE increased its annual dividend payments by 50% after operating profits more than doubled to £174.2 million ($343.3 million). Compared to last year, LSE's revenues were up by one fifth at £349.6 million ($688.9 million) However, there are new competing threats to LSE regaining its former world-leading momentum: Project Turquoise, a consortium of seven global investment banks, the UK based start-up Plus Markets, and Project Boat, a consortium set up by investment banks which plans to offer competing services in trade reporting.

Private Equity Preferred by Investors in the U.S.

The Financial Times reported last week that U.S. companies raised more money through deals involving private placements than initial public offerings last year, demonstrating how in the wake of the 2002 Sarbanes-Oxley law, issuers are increasingly shying away from the scrutiny and expense of the U.S. public market. Public equity offerings on the three largest US stock exchanges – the New York Stock Exchange (NYSE), NASDAQ (NDAQ) and the American Stock Exchange (ASE) – raised $154 billion in 2006, while offerings involving 144 private placements raised $162 billion. It seems that many international companies look at private placements as the best way to raise capital in the U.S.

According to its statistics, the NASDAQ receives 10 times as many applications to register placements than it does for offerings. Consequently, the exchange is preparing to launch an automated market dedicated to such private placements. NASDAQ has another effort underway that strives to enhance private placements transactions – the Unified Markets.

Russian Real Estate Developers Raising Capital

The PIK Group, a Russian real estate development company, is joining its global peers (U.K.-based Vector Hospitality PLC, Spain-based Realia Business SA) in an effort to raise $8.8 billion in the three biggest real estate IPOs of this year. PIK is being advised by Deutsche Bank AG, Morgan Stanley and Nomura International. These are the largest IPOs in European real estate markets to date.

Logo for the PIK Group

An IPO held this month for AFI Development PLC, a Russian-Israeli property management company owned by the diamond billionaire Lev Leviev, successfully raised $1.4 billion on May 3, 2007. PIK's stock offering, ranging in price from $25 to $31 a share, would value the company at $14.1 billion, making it Russia's biggest property management company by market capitalization. PIK Group will offer new and existing shares and list them on the Moscow and London exchanges.

Russian IPO Advisors Earn Big Payouts

The Russian press reported that recent Vneshtorbank (VTB)'s “popular IPO" earned hefty fees for advisors to the listing. While total fees added up to about 1.6% (as compared to the IPO average of 2-2.5%), most market watchers feel that these are adequate. VTB allocated $3.2 billion to the fees, while Citibank, Deutsche Bank and Goldman Sachs received $ 30-37 million a piece, and Renaissance Capital (the placement coordinator in Russia) were paid $7 million. Renaissance managers were smart enough to issue (in collaboration with the Royal Bank of Scotland) VTB stock certificates – that earn them an additional $2 million on the certificates’ commission fees (0.25%).

Another read-worthy piece was produced last week by Bloomberg financial news service. “The Russian market has attracted U.S. securities firms led by Goldman Sachs, Merrill Lynch and Lehman Brothers, who are on a hiring binge as they compete with local rivals Renaissance Capital, Troika Dialog and Alfa Bank for the most experienced staff.” Thus the authors claim that Moscow bankers earned $7 million paydays on IPOs - double the average for New York. Compensation for bankers in Russia rose by about 25% in 2006, exceeding the 15-20% increase in the U.K. If this trend continues, some experienced investment bankers from New York and London may find the new opportunities in Moscow too attractive to pass up.

Nomos Bank Opts Against IPO, Merges with PPF Group

NOMOS Bank recently decided against issuing an IPO and instead signed a memorandum of understanding with the Czech bank PPF Group N.V. The goal of this new joint entity is to create one of the biggest universal banking groups in Russia. PPF Group N.V. operates Russia’s Home Credit and Finance Bank. HCFB is one of the notorious banks in Russia - popular consumer ratings accuse them of raiding depositors’ money through hidden fees and surprise interest rate hikes (those of you who read Russian may find these horror stories on the popular “Peoples’ Bank Rating” web pages).

Maybe the new combined banking group will be better behaved? One of the major reasons to skip a potential RHCB IPO, according to many Russian financial market experts, was the fact that NOMOS Bank does not have an adequate retail structure, thus impeding the possibilities for attracting more investment.

NOMOS Bank was to be the first Russian private bank (in contrast with retail banks, private banks concentrate on servicing high net worth individuals and businesses) to go public. This vacated slot was immediately filled by one of the top regional (Tatarstan) banks - AK Bars. The press reported that the bank is actively working with investors both in the West and in the East, particularly in Hong Kong and in Singapore.

For Tatneft and Tartarstan, Business is Good

A notable fact is that Troika Dialog CEO Ruben Vardnanian is on Board of AK Bars. Tatneft is the biggest shareholder of the bank; according to Russia’s Interfax News Agency ratings it is ranked number 19 among Russian banks based on assets. Experts think that AK Barks may issue an IPO with P/BV multiplier equal to three due to its regional location; that figure could rise to $ 500-$600 million with a 20% float. Among other private banks that are mulling IPO is Zenit Bank, which is also owned by Tatneft.

Map showing the location of Tatarstan in the Russian Federation

Tatneft’s rising value, boosted by high oil prices, has proven profitable to its home region of Tartarstan. According to an ITAR-TASS news agency story from last weekend that quoted Russian Finance Minister German Gref, average salaries have quadrupled in the Muslim-majority Russian republic since 2000.

HSBC To Go Forward Without a Russian Partner?

As foreign banks strive to expand operations in Russia, the Russian subsidiary of HSBC has received a license to initiate retail banking operations in the country (providing deposits, loans, mortgages, credit cards and asset management). The bank plans to set up its own retail network by the end of 2007. Many market experts in Moscow believe that HSBC will eventually prefer to buy a Russian bank. Indeed, establishing a foreign-owned network in Russia without a domestic partner is time consuming (more than a year) and expensive (about $ 350,00 - $ 400,000).

Will the MICEX Issue its Own IPO?

On the annual shareholders meeting of the Moscow Interbank Exchange (MICEX), one of the most discussed issues was the way to attract financing required to cover operational risks. According to MICEX officials, although the question of IPO was not on the agenda, the idea is vital and there is a possibility of the stock exchange’s IPO within the next 5 years. The MICEX’s management is going to seriously address the issue within this year.

Broadening Russia’s New Round of Privatization

As I wrote earlier we are now experiencing a new wave of privatization efforts in Russia. This week a new evidence emerged - the federal government plans to privatize half of its stock of railway trucks in a sell-off expected to raise $2.3 billion. According to the Transport Minister Igor Levitin a company holding half of Russia's rolling stock, or 260,000 rail cars, would issue shares in 2007 or next year. This is another elaboration on the previously reported plan to establish a single subsidiary company and attract from $2 to $4 billion.

Dimitry Medvedev was recently promoted to First Deputy Prime Minister by Putin

Goldman Sachs Chairman to Meet Dimitry Medvedev in St. Petersburg

Although I have said that I have no wish to post about politics on my blog, two news items from Russia caught my attention last week. The first was a news release from Goldman Sachs which said that its CEO “Lloyd Blankfein will meet with businessmen and politicians in Russia for the second time this year when he attends the St. Petersburg Economic Forum in June. He sat down last month with First Deputy Prime Minister and presidential candidate Dmitry Medvedev. Goldman plans to double its staff in Moscow to 70.”

A quick background note for my American readers - St. Petersburg is the hometown of President Putin and many senior members of his administration. Dimitry Medvedev and Defense Minister Sergey Ivanov are considered by Russian pundits to be the most publicly visible candidates to succeed President Putin in 2008. Russia’s constitution bars any president from seeking a third term, and Putin has declared several times that he will not run again. However, in a recent press conference with reporters, Putin alluded to his plans to serve the Russian nation in some capacity after he leaves office.

George Soros is not popular with many American conservatives - or many Russians

Good-bye, Soros!

On another semi-political note, most Russians know that the American investment tycoon George Soros failed to implement his long-standing goals for Russia. Therefore I welcome the news that his company (Soros Fund Management LLC) recently sold its 0.35% stake in Vympelcom and 1.3% in Wimm-Bill-Dunn. That’s good news, as everyone here in Moscow knows that Soros did nothing good for Russia. I have written once before about this controversial figure and his excessively pessimistic outlook on Russian capitalism.

This Week’s New IPO Candidates

IFC Metropol Canada – could be the first Russian IPO on Canada’s Toronto Stock Exchange AIM.

OJSC Rosinter Restaurant Holdings – this restaurant holding company is planning an IPO in Russian and U.S. markets. Along with the TGI Friday's trademark in Russia, Rosinter owns the Japanese restaurant chain Sushi Planeta, which has a prominent location between Tverskaya and Red Square.

Vitrina A, advertising agency – IPO in 2008 after establishing a holding company (ThisWayGroup – TWG) with Retail House and Brandflight.

Russian Strategic Growth Holdings PLC, the buyout fund subsidiary of Russia's National Bank Trust and Trust Investment Bank, plans an LSE AIM listing this year with the goal of raising at least $150 million.

A new consortium combining the assets of Sovkomflot Comp and the Novorossiisk Shipping Company is planning an IPO sometime in 2008 after the planned merger.

You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.