Actuality February, 11, 2007

One of the momentous events of 2006 became numerous IPOs (Initial Public Offering is the first sale of stock by a private company to the public) of the Russian companies that managed to attract more than $17,5 bln. Nevertheless, not all IPOs became successful for investors.

World tendencies – change of leaders

London stock exchange (LSE) became the world leader by volume of means accumulated during IPO in 2006, outstripping the Hong Kong Stock Exchange (HKEX) and the New York Stock Exchange (NYSE) on this index that took the second and third place accordingly. Numerous IPOs of the Russian companies contributed to this deal – the LSE became the “beloved” trading floor of the Russian companies.

In 2006 99 companies from 25 countries of the world held IPO on the LSE, and accumulated here $54,8 bln altogether. The largest became the stocks offering of the Russian oil company “Rosneft” that accumulated more than $7 bln.

During IPO only Chinese banks managed to take for their stocks more than “Rosneft”: Chinese state bank ICBC (Industrial and Commercial Bank of China) took $21,9 bln, Bank of China took $11,2 bln (together with exercised option for put). Offerings of Chinese banks were held on the HKEX, where Chinese companies prefer to hold their IPOs. As a consequence according to the year results on the Hong Kong Stock Exchange were held IPO for $39,5 bln.

The third place of the former leader in 2006 – the New York Stock Exchange – is impossible to relate to surprises. Reason of attractiveness decline of the NYSE is too rigid requirements to the companies from the side of regulatory authorities, caused by coming into effect of “The Sarbanes-Oxley Act” (2002).

Concerning companies that attracted the biggest amount of means during IPO (for the whole history), the change of leaders happened there also. Presently the first four looks as the following:

1.    IPO of the Chinese state bank ICBC (Industrial and Commercial Bank of China) totaled $21,9 bln in 2006;
2.    IPO of the Japanese NTT Mobile (now – NTT DoCoMo) totaled $18,1 bln in 1998;
3.    IPO of Bank of China totaled $11,2 bln in 2006 (together with exercised option for put);
4.    IPO of the Russian “Rosneft” totaled $10,7 bln in 2006.

The IPO boom is characteristic, foremost, for the developing markets.

There is a reverse process on the developed markets – many companies transform from public into private as a result of acquisition of these companies by the funds of direct investments. Foremost, it concerns the USA and Great Britain. For the year the stock market of the USA lost $55,8 bln, and the size of stock exchange capital of the British companies was reduced by $8,4 bln.

As for the Russian realities, the Russian market strongly falls behind the western market by size of companies yet.

Russian tendencies

The largest IPO of the Russian companies in 2006 (in chronologic order):
1.    “COMSTAR-United Telesystems” JSC attracted $1 bln in February, the offering was held on the LSE;
2.    Razgulay Group (food industry) attracted $144 mln in March, the offering was held on the MICEX and the RTS;
3.    Veropharm (pharmaceutics) attracted $140 mln in April, the offering was held on the RTS;
4.    Magnit (retail business) attracted $368 mln in April, the offering was held on the RTS;
5.    Cherkizovo Group (food industry) attracted $251 mln in May, the offering was held on the MICEX, the RTS and the LSE;
6.    CTC Media (telecommunications, mass media) attracted $346 mln in June, the offering was held on NASDAQ;
7.    Belon (production and processing of coal) attracted $57 mln in June, the offering was held on the RTS;
8.    Rosneft (oil company) attracted $10,4 bln in July, the offering was held on the MICEX, the RTS and the LSE;
9.    TMK Group (metallurgy industry) attracted $1 bln in October, the offering was held on the RTS and the LSE;
10.    OGK-5 (energy industry) attracted $459 mln in October, the offering was held on the MICEX and the RTS;
11.    Sistema-Hals (real estate industry) attracted $420 mln in November, the offering was held on the LSE;
12.    Chelyabinsk Zinc Plant (metallurgy industry) attracted $281 mln in November, the offering was held on the LSE and the RTS;
13.    Severstal (metallurgy industry) attracted $1 bln in November, the offering was held on the LSE;
14.    Raspadskaya (mining and production of the crozzling coal) attracted $316,7 mln in November, the offering was held on the MICEX and on the RTS;
15.    World Trade Center (real estate industry) attracted $105,3 mln in December, the offering was held on the RTS;
16.    RGI International Ltd.

(real estate industry) attracted $192 mln in December, the offering was held on the LSE (AIM).

The most popular place of IPO hold in 2006 was the LSE.

Hardly any other stock exchange will be able to compete with LSE by attraction in 2007, although many western stock exchanges declared about the plans of attracting the Russian companies to their stock markets. In particular, the president of the pan-European stock exchange Euronext appealed to the Russian issuers “not to get obsessed over the LSE” and pay attention to Euronext stock exchange. The German stock exchange AG (Deutsche Borse AG Group) doesn’t also desist from attempts “to win over” the Russian companies – in December, 2006 it signed a memorandum about cooperation with the MICEX, including, in particular, agreements on coordination of actions during hold of “double” IPO.

Concerning the Russian stock exchanges – the RTS and the MICEX, their prospects appear bright.

Now the entrance to the stock exchange in Russia is already half as much cheaper than analogical operation in London.

With interest reduction in the Russian companies in the West, stocks offering within Russia will become no less attractive, as well as IPO in London.

Moreover, the FFMS (Federal Financial Markets Service) protects interests of the Russian investors and interests of the Russian stock exchanges altogether, but it has forbidden the Russian issuers to hold IPO abroad only. The FFMS regulation, obligating to hold 30% of stocks during IPO within the country, acts from January, 2006.
Except protective actions, stimulation development of the Russian stock exchanges occurs also, deriving successful experience of the Western stock exchanges.

Within the framework of the RTS and the MICEX, intended for offering and trade of securities of small and middle capitalization issuers (analogue of AIM on the LSE), trading floors are created. It is the sector of innovative and fast-growing companies.

The purpose is creation of favourable conditions for the attricting investments in the innovative and quickly growing economy sector of the companies of small and mid business, creation of prerequisites for mass IPO, prevention of leave of the Russian companies for the foreign trading floors, creation of prerequisites for solving the task of the venture financing.

On the RTS it is the RTS-Start trading floor.

The FFMS isn’t also against the amalgamation of

the RTS and the MICEX in one major stock exchange, which would be able to compete with the leading European stock exchanges. It is discussed from December, 2006, but there haven’t been done any steps yet.

The paradoxes of IPO

IPO of the Russian companies, held in 2006, showed paradoxical results.

The fall of stocks’ quotations of the Russian companies was observed eight times out

of sixteen to the end of

the first month after IPO. The most noticeable falls are – Raspadskaya (-14%), Severstal (-12%), Veropharm (-9%), Magnit (-8%). This list continued IPO of Polymetal that was held on February, 7, 2007.

The stocks’ price of Polymetal reduced at first by 2,5%, and then by 4,24% in two subsequent days after IPO

Moreover, on February, 7, 2007 the cost was less than the price of stock offering ( in terms of rubles) of Razgulay Group (-16%), Chelyabinsk Zinc Plant (-10%), Raspadskaya (-12%) companies.

The reverse tendency showed the stocks of Pipe Metallurgical Company (TMK) – the stocks’ price grew by 20% right after the offering and continued the growth by 65,46% by February, 7, 2007.

The stocks of other companies showed the following growth in relation to the offering price (in terms of rubles) on February, 7, 2007: OGK-5 57,9%, Magnit 48,9%, CTC Media  44,64%, Veropharm 32,8%, Sistema-Hals 19,8%, “COMSTAR-United Telesystems” JSC 6,7%, Severstal 1,5%, Cherkizovo Group 0,6%.

Concerning the most well-known IPO – “peoples” IPO of Rosneft Oil Company – it is also not so smooth here. In August 2006 the stocks’ price of Rosneft reduced by 3,2%, but as the result the Company stocks’ price grew in relation to the offering cost  by 17,4% by February, 7, 2007.