Issuers and banks reap rewards as Russia’s IPO resurgence gathers pace
The strong recovery in Russian equity capital markets presents opportunities for issuers and banks, and the positive momentum is expected to continue into 2022.
Almost as many IPOs of Russian-related companies have taken place so far in 2021 as in the previous three years combined, according to data from S&P Global Market Intelligence. Large listed companies were also able to access new capital from follow-on offers, a combination that put Russian capital markets on track for a record year.
US banks in particular are among the biggest beneficiaries of this recovery. U.S. institutions include five of the top six bookkeepers in Russia’s equity capital markets, or ECMs, trades by deal value this year, according to Refinitiv.
“This will be a banner year for us and for the entire Russian market,” said Alex Metherell, co-head of global banking services at Russia-based VTB Capital. “It’s a trend that will continue.”
On the rebound
So far, seven listings of Russian-related companies have taken place in 2021, according to Market Intelligence data, up from five in 2020, three in 2019 and none in 2018. The overall transaction value of these IPOs has also increased significantly.
The largest IPO to date in 2021 was that of retail chain Fix Price Group, which raised around $ 2 billion in a double listing in March in Moscow and London. Other large floats included those of IT company Softline and real estate database operator Cian, which also listed their shares in Russia and abroad.
Softline and Cian are the most recent examples of Russian companies that have chosen to Register parent entities in foreign jurisdictions in order to place their securities on foreign stock exchanges and circumvent foreign listing restrictions introduced in Russia in the 2000s. A less recent example is TCS Group Holding PLC, owner of JSC Tinkoff Bank, based in Russia, which debuted on the UK stock exchange in 2013, raising $ 1.1 billion at the time. The company then obtained a second listing on the Moscow Stock Exchange.
In the effort to encourage Russian companies to exploit public procurement, the central bank in November 2021 removed the limits on the number of shares that Russian companies are allowed to place on foreign stock exchanges, calling them “unnecessary barriers”.
The Moscow Stock Exchange is in talks with around 40 companies considering IPOs in the coming years, CEO Yuri Denisov said at an investment forum in early December. Interest in listings is high in various industries, including telecommunications, IT and e-commerce, according to Leonid Delitsyn, analyst at Finam, a Russian-based brokerage firm.. In the United States, specialist acquisition companies targeting Russian IT companies have already raised funds, Delitsyn Noted.
VTB Capital, which is part of state controlled VTB Bank PJSC and Russia’s leading ECM advisor in 2021 according to data from Refinitiv is working on several future IPOs with companies in the financial, TMT and mining sectors.
“If we see favorable market conditions continue into 2022, we can expect… as many IPOs as we did this year,” Metherell said.
The Russian bookkeeping market has been dominated by Western, mostly American, investment banks such as The Goldman Sachs Group Inc., Morgan Stanley, JP Morgan and Bank of America Corp., which is benefiting the most from the latest wave of IPOs in Russia and will continue to do so, according to Delitsyn.
Cian’s IPO demonstrated the ability of U.S. bookkeepers to complete listings, the Finam analyst said.
“Russian issuers determined to proceed with an early IPO will hire exactly these underwriters, as the likelihood of a positive outcome increases dramatically,” Delitsyn said.
Some $ 5.7 billion was raised on the Russian ECM in the first nine months of 2021, up 33% from the same period last year, with IPOs accounting for 46% of proceeds from ECM and the rest including follow-up offers and other transactions, according to Refinitiv. . U.S. banks acted as bookkeepers on nearly $ 4 billion in ECM transactions during the period analyzed, with their combined market share reaching 68%. They also held a significant combined market share in previous years.
Politics at stake
The wave of Russian IPOs comes after several years of fallow amid investor fears over the impact of sanctions imposed on Russia in 2014 in connection with the annexation of the Crimean Peninsula and after the alleged interference of the country in the 2016 U.S. elections. There were 16 Russia-related IPOs between 2015 and 2017, up from 43 deals between 2008 and 2014, according to Reuters.
Reports of a possible Russian invasion of Ukraine have rekindled geopolitical tensions, which Finam’s Delitsyn sees as the biggest risk factor for potential IPOs. “For the IPO of innovative Russian companies to be successful, we need optimistic American investors,” he said.
Some IPO contenders, such as carsharing company Delimobil and discount alcohol retailer Mercury Retail Group, postponed their plans to November amid worsening backdrop market conditions. The MOEX Russia stock index posted strong gains throughout 2021, but has fallen in recent weeks, while the Russian ruble has also weakened amid rising volatility.
Yet this volatility is not specific to Russia and has been reflected in global markets, according to Victor Dima, partner and head of the stock analysis department at Russian investment firm Aton. “We expect to see the same level of interest in equity investing in 2022 [as in 2021], provided the market remains stable, ”said Dima.
Russian capital markets are also somewhat less dependent on international investors than in the past thanks to growing interest from domestic retail investors seeking to protect the value of their savings against a backdrop of low deposit interest rates. The number of retail investors on the Moscow Stock Exchange reached 15 million in October, increasing to 6.2 million in 2021.
The participation of Russian retail investors in IPOs represents between 10% and 30% of the portfolio, according to Denisov of the Moscow Stock Exchange, while VTB estimates that the value of retail investments in the Russian stock market could double over the years. next three years compared to the current level of about 9 trillion rubles.
In a move that should boost domestic investor confidence, President Vladimir Putin recently proposed a mechanism that would protect long-term retail investments in Russian securities, similar to the bank deposit protection system.
As of December 17, US $ 1 was equivalent to Russian rubles 74.19.