Russian IPO/SPO Market -- Key Trends and Outlook

UnknownIgor Katusha Senior specialist at issuer relationship center MICEX
Negative trends in the international financial markets and fear of global recession caused by events in the U.S. mortgage credit market has created negative conditions for placements made in 2007. Despite complex market conditions, 2007 saw a record Russian IPOs and SPOs. The total volume of IPOs and SPOs by 28 Russian companies reached $31 billion, including 22 IPOs totaling $21 billion, twice as much as in 2006.

The above-stated figures do not include placements made in the power energy sector. The reason for dividing the power energy into a separate category seems to be quite logical due to the nature of offerings made in this sector. In almost every case the major share of the issue was bought by strategic investors. The only exception was the placement of OGK-2. Placements made in power energy increased the total amount raised by Russian companies in 2007 to $44 billion.

Another trend is the shift from resource companies to consumer-driven sectors. In 2007, the main IPO/SPOs were conducted by banks, retail companies, power energy, mining and high-tech companies. The share of resource companies, which traditionally dominate in the Russian IPO/SPO market, was essentially reduced. A significant trend is that most of the companies realized the advantages of transparency and higher corporate governance standards.

IPO/SPO statistics in 2007 show that Russian companies have started to prefer domestic stock exchanges. The main reason is the growth of liquidity on the Russian stock market and the increase of assets of Russian institutional investors. In 2007 about 38 percent of all IPO/SPOs were made in Russia ($11.7 billion). This is much more than in 2006, when companies raised only $1.2 billion at home. The key feature of 2007 was the significant growth of "double placements" (53 percent, or $16.1 billion) and decrease of interest in foreign stock markets. Currently the domestic stock market is the central source of liquidity for Russian assets.

The world practice says that up to 90 percent of all companies planning IPO/SPO choose a domestic stock exchange as the basic listing platform since it is much easier to be recognized by domestic investors. The domination of "double placement" takes place only if the local market is undeveloped. However, statistics indicate that there is considerable domestic demand in the Russian market.

The Russian stock market for the last few years has been growing actively.