Tuesday, 27 November 2007

Russian exchanges in battle for liquidity

Financial News

Jason Corcoran in Moscow

26 Nov 2007

Alliances and technology investment should attract IPOs

Russia’s stock exchanges are battling against international competitors and mounting pressure to consolidate as they launch initiatives to attract domestic liquidity.

The London Stock Exchange remains the preferred destination for Russian companies looking to tap the capital markets, handling more than 70% of foreign listings by Russian companies. But rivals, including Frankfurt exchange operator Deutsche Börse, which opened a Moscow office this year, are attempting to challenge the LSE stranglehold.

Roman Kirindassov, who heads the German exchange’s campaign to lure Russian issuers, said: “For Russian companies, we offer a real alternative for tapping western capital with the most cost-effective and time-saving listing procedure.

“Russian banks and brokers can obtain direct membership to our electronic trading platform Xetra and Eurex, the world’s largest derivative exchange.”

Cat Oil, an Austrian provider of services to oil and natural gas producers, last year became the first company with Russian operations to sell shares on Deutsche Börse. It was joined in February this year by two Russian groups, Zaab Energy and IBS Group.

Nordic and Baltic stock exchange group OMX, which is subject to complicated takeover negotiations involving US exchange Nasdaq and Borse Dubai, has expressed an interest in buying a stake in a Russian bourse.

In April, OMX entered into a partnership with the St Petersburg Exchange – whose profits halved in 2005 after losing its monopoly to trade Gazprom stock – and RX, a group of UK venture capitalists, to create a new international trading platform.

The International Exchange St Petersburg will offer small and mid-sized Russian growth companies access to international capital without listing on a foreign exchange.

Although London has emerged as the home for Russian IPOs, domestic exchange Micex believes it is making inroads. Micex claims to account for more than 70% of transactions in Russian securities by volume, compared to 50% two years ago.

Alexander Potemkin, president of Micex, said: “We can say with certainty that foreign investors are prepared to bear the risks of the Russian infrastructure. Non-residents played an important role in the development of the Russian internal stock market as they gradually changed over from trading in global depositary receipts and American depositary receipts to trading in local stocks.”

Companies and their bankers cite the lack of a high-quality long-term domestic investor base as their reason for listing aboard.

Local exchanges, however, argue that conditions are improving with the growth of a domestic asset management industry and pension reform.

State-owned Sberbank bucked the trend in the summer with its $19bn (€12.9bn) share offering, which was placed entirely on Russian bourses.

To compete with London’s Alternative Investment Market, both the rouble-denominated Micex and its dollar-denominated rival, RTS, have launched secondary markets.

In June, Micex launched its innovation and growth companies sector, which has been described as Russia’s answer to Nasdaq, catering for telecommunications, software, biotech and hi-tech companies.

Micex, which focuses on individual investors and small to medium-sized brokerages that work directly with foreign investors, expects 10 new issuers to enter the opened sector.

RTS launched futures and options contracts in a number of Russian blue chips including Mobile TeleSystems, gold producer Polyus Gold, natural gas producer Novatek and oil pipeline monopoly Transneft.

Although companies usually list their shares on both exchanges, trade volumes on Micex surpasses those on RTS. However, RTS has a sizeable over-the-counter market for small-cap stocks and remains Russia’s only derivatives exchange.

Both domestic exchanges are looking to Asia and the Commonwealth of Independent States for growth. RTS acquired an equity stake in the Ukrainian stock market, Inneks, while Micex has signed a co-operation agreement with the Hong Kong stock exchange, which could pave the way for dual listings.

Potemkin said the deal with Hong Kong would bring more Asian investors to the Russian stock market.

He said: “This year, the share of foreign investors’ transactions in the volume of stocks trading on the Micex has exceeded 25%. The interest of Asian investors keeps growing.”

Despite the innovative efforts of the exchanges, however, the Russian regulator continues to call for the two main bourses to merge. The Federal Service for Financial Markets cites improved clearing, better market efficiency and the need to create a central depository as main benefits of a union.

Vadim Yegorov, head of public affairs at Micex, confirmed a merger could be on the cards in the next year or two. He said: “We are discussing it now but a lot depends on the regulatory bodies, pooling our infrastructure and shareholders’ interests.”

The Russian central bank owns 28% of Micex’s parent company, while RTS is privately owned by local brokerage houses including UFG, Troika, Aton, Renaissance and Alfa.

Roman Goryunov, chairman of RTS, said the exchange had not ruled out a merger but he believed the global trend towards consolidation did not necessarily apply to Russia.

He said: “RTS and Micex have their own segments of the market, their own clients and instruments. That is why current competition helps to develop the technology and market instruments and the development of the Russian financial market.”

Elena Krasnitskaya, a market analyst at Troika Dialog, believes policymakers are determined to expand the domestic markets for Russian companies, citing as one example a law permitting domestic custodians to issue Russian depositary receipts on foreign securities.

The regulator also published a bill in August that will eventually provide a legal framework for trading in foreign securities.

Krasnitskaya said: “The latest move, if successful, would boost the position of domestic exchanges in their competition with foreign peers for the stocks of CIS countries.

“It is becoming important to attract these listings as in the past 18 months alone, six Kazakh and Ukrainian companies have conducted offerings on the London Stock Exchange’s Alternative Investment Market.”

Calls for greater integration of the 18 CIS stock exchanges and three depositories grew louder at August’s general meeting of the International Association of Exchanges of the CIS countries.

Micex’s Potemkin said the most pressing task is to integrate the markets by allowing mutual admission of issuers, participants and investors.

He said: “One important measure aimed at securing this integration must be the creation of an IT committee and the compatibility of trading, broker, information and analytical systems, as well as the different telecommunication products of the CIS countries.”

In June, Russian Finance Minister Alexei Kudrin admitted his government was targeting the leading companies of the CIS in an attempt to persuade them to launch IPOs in Moscow. Russia already boasts by far the biggest and most liquid stock market in the region.

However, it is increasingly having to compete with the Warsaw stock market, which has attracted several Ukrainian IPOs and is equally well developed.

Warsaw has signed an agreement with one Lithuanian and two Ukrainian brokerage firms to encourage foreign listings. The Polish bourse could yet emerge as the main threat to the Russian exchanges’ hopes of becoming the leading trading centres in the region.


Saturday, 24 November 2007

Fund Giant to Launch Retail Funds in Russia

Wealth Briefing

November 22, 2007

Jason Corcoran in Moscow

Fund giant Pioneer Investments is to launch its first Russian domiciled retail funds in Moscow in January.

A senior source close to Pioneer's parent group UniCredit told WealthBriefing: "We will soft launch funds in January and then go public in February."

Elena Loginova, previously chief executive of DWS Investments in Russia, has been hired to lead the business.

Pioneer Investments also plans to offer separate accounts for high net worth individuals, as well as products for institutional clients.

Karen Kesoyan has also been hired as head of marketing from Troika Dialog.

Unicredit is also rebranding its Russian subsidiaries Aton Capital and International Moscow Bank (IMB) but dismissed speculation of a merger.

Unicredit Aton, acquired late last year for $424 million, will focus on brokerage, capital markets origination, research and M&A advisory.

IMB, acquired by Unicredit's Bank Austria unit, will be rebranded as UniCredit Bank and will run fixed income, foreign exchange and money markets activities.

A Unicredit spokeswoman in Milan, told WealthBriefing: "There are currently no plans to merge the two banks. UniCredit via IMB and Aton will open new perspectives for local Russian clients as well as for investors into the Russian market.

"Just like in other Central Eastern Europe countries, UniCredit envisages becoming one of the leading providers of highly sophisticated products and services with a strong local foothold."

Rebranding is expected to start by year-end and will be accompanied by an advertising campaign in Russia and international media.

UniCredit last week paid $2.1 billion for a 91.8 per cent stake in Kazakhstan's ATF Bank, the country's fifth largest.

The group said the deal, which is the biggest foreign investment to date outside Kazakhstan's oil sector, would provide "a hub" for Unicredit to advance deep into central Asia.

Monday, 19 November 2007

TPG recruits Goldman for Russian deal

Financial News

Jason Corcoran in Moscow and Catherine Craig in London

19 November 2007

US private equity firm TPG Capital is teaming up with investment bank Goldman Sachs’ buyout arm to help finance its acquisition of Russian supermarket chain Seventh Continent as TPG seeks to expand its European network.

The proposed $2bn (€1.4bn) takeover would be TPG’s first since it set up an office in Moscow this year and would represent the largest Russian transaction by a global buyout fund.

TPG enlisted the help of Goldman Sachs Private Equity in its bid to buy 7K-Investholding, which owns 74.8% of Seventh Continent and 99.5% of MCapital, a real estate company that rents about 40% of selling space to Seventh Continent.

The deal is being led by TPG partner Stephen Peel, who was previously vice-president in charge of German investments at Goldman Sachs. A source close to TPG said: “Goldman Sachs has been brought on now TPG wants to buy all 7K-Invest. The firm wanted to buy a 60% stake but those plans have changed.”

TPG signed an exclusive memorandum of understanding with the retailer in September, under which the firm had a right to buy a stake in 7K-Invest. The transaction value was not disclosed but was understood to be $1.3bn.

The chain’s founder and politician Vladimir Gruzdnev recently sold his half of 7K-Invest worth $1bn to his partner Alexander Zanadvorov ahead of the parliamentary elections on December 2, which he is contesting.

The original deal was scrapped because due diligence had taken longer than expected. The source said: “Gruzdnev had to sell quickly to comply with an order by President Putin for politicians to distance themselves from big business ahead of the Duma elections.”

Svetlana Sukhanova, a retail analyst at UBS, said Zanadvorov could sell to TPG and Goldman Sachs or refinance through a secondary listing on the London Stock Exchange. She said: “He’s in a strong position and he can do what he wants. He has big, reputable investors waiting to invest and this would be the biggest Russian deal by an international buyout fund.”

Zanadvorov received loans worth $560m from Deutsche Bank and $430m from Nordea Bank. He previously said shareholders wanted to list 25% of equity on the London Stock Exchange in the first quarter of next year, bringing the free float up to 50%.

A TPG spokesman in Moscow said: “A letter of intent was signed with Seventh Continent on September 3 but nothing has been completed. This is TPG’s first deal in Russia and we are careful not to comment further until it is completed.”


Monday, 12 November 2007

Celtic Tigers dance with the Russian bear

Financial News

By Jason Corcoran

12 November 2007

Letter from Moscow

Ireland’s Celtic Tiger cubs have marched across Europe in a spending spree and Moscow has been their target.

Sean Quinn, Ireland’s richest man, according to the 2007 edition of the Sunday Times Rich List, is leading the vanguard of Irish property investors who are fanning out across Russia and the Commonwealth of Independent States in search of big returns.

His investment vehicle Quinn Group is rumoured to be lining up a $250m bid for one of Moscow’s top hotels, the Radisson SAS Slavyanskaya.

The four-star hotel is jointly owned by the city government and Swedish hotel operator SAS Radisson. It is understood that Quinn has asked the hotel’s owners to start due diligence.

The reclusive Fermanagh-born billionaire is the most prominent Irish investor in Russia, having spent an estimated €250m on two shopping malls, €100m on a chain of DIY hypermarkets and €75m on a logistics park.

Quinn, whose empire spans insurance, construction, glass manufacturing and property, has earmarked €3bn to spend in the region over five years. His group has completed office projects in Moscow and the Ukrainian capital Kiev and is constructing office blocks and logistics projects in regional Russian cities.

Treasury Holdings, the Irish group that owns London’s Battersea Power Station, has two big developments under way in St Petersburg, a golf complex costing €200m and a €500m residential scheme for more than 1,000 homes at St Catherine’s Palace.

Quinlan Private, the wealth management group headed by former Irish tax inspector Derek Quinlan, is developing a 100,000 sq ft atrium on St Petersburg’s main street, Nevsky Prospekt.
Redquartz, the property company headed by hotelier Paddy Kelly, has hired broker Cenkos to advise on a listing in February for a €1bn Russian real estate fund.

The fund, which has the working title of Celtic Bear, will invest in 15 real estate projects, mainly in Russia’s regional cities.

Outside property, Irish industrial companies have built a presence through mergers and acquisitions.

Building materials group CRH and paper manufacturer Smurfit Kappa have operations near St Petersburg following acquisitions.

Irish-registered oil and mineral exploration companies Aminex and Celtic Resources also have operations in Russia.

Irish Minister for Trade and Commerce John McGuinness has been to Moscow on a mission to create commercial ties between the two countries. The Government has identified opportunities for Irish companies in IT, healthcare and pharmaceuticals, construction, engineering and the service sector, according to McGuinness.

The minister announced the launch of the first direct flight between Dublin and Moscow. Russian airline S7 is to start flying in April in response to what it claims is growing demand from businessmen and tourists in both countries.

Such is the level of investment from Irish property tycoons that Russia’s Economic Development and Trade Minister, Elvira Nabiullina, last month said Ireland was the 12th largest inward investor in Russia last year.

Rosstat, the federal statistics service, indicated this position has improved,with Irish investors pumping about $2bn into Russia in the first quarter of this year. This puts Irish investment at $4.4bn, placing it sixth in the list of countries that have invested in Russia.

The Irish assault on the eastern front represents a second coming. In the 1990s, Irish investors were pioneers during Russia’s new era of perestroika.

One of them, who did not flee after the 1998 financial crisis, said: “I have been there, got the T-shirt, lost it and got it back again.”


Thursday, 8 November 2007

Moscow hotel may be target of €175m Quinn bid

Irish Independent

By Jason Corcoran

Monday November 05 2007

Ireland's richest man Sean Quinn is rumoured to be lining up a $250m (€175m) bid for one of Moscow's most famous hotels, the Radisson SAS Slavyanskaya.

Mr Quinn is the most prominent Irish investor in Russia having spent an estimated €250m on two shopping malls, €100m on a DIY chain and €75m on a logistics park there.

Quinn group's property division already owns nine hotels across Europe.

Correspondence from Quinn's advisers Dolmen Corporate Finance -- indicating the group's interest in acquiring 100pc of the hotel -- was cited by Russian business newspaper Kommersant, in a recent report to the effect that Quinn had asked the hotel's owners to start due diligence procedures.

"We are aware of the rumours circulating in Moscow, but are not going to comment," said Kevin Beary, head of corporate finance at Dolmen. "We do not discuss client business."

A spokesman for Quinn group also declined to comment.

Overlooking the Moscow river, the four-star Slavyanskaya hotel and business Centre is connected to the busy Arbat shopping street by a footbridge and is located about two kilometres from the Kremlin.

The hotel complex includes a shopping gallery with bars, restaurants, designer shops, hairdressing and beauty salons, gifts and jewellery shops. It also features a fitness centre, a casino and a cinema showing English-language films.

The hotel, which is jointly owned by the Moscowcity government and the Swedish hotel and resort operator SAS Radisson, has a colourful history.

In 1990, Presidents George Bush and Mikhail Gorbachev blessed the 430-room tower as a shining example of the role US-Soviet joint ventures could play in Russia's new era of perestroika.

But the hotel fell under the influence of Chechen businessmen and became known as the 'Chechenskaya' for its links to Moscow's mafia.

The American entrepreneur Paul Tatum, who was the joint owner, reportedly refused to sell his share in the hotel to his partner and was gunned down outside the premises in November 1996.