Investors Reluctant to Pay Too Much for Russian Stocks
Uralkaliy, Russia’s largest producer of potash fertilizers, has canceled an additional offering of its stocks. The company was dissatisfied with the price investors had offered in the road show. Market players and analysts note that a great number of Russian IPOs have recently been cancelled or postponed. Investors no longer want to pay lofty prices for Russian stocks.
Uralkaliy was to announce Wednesday the price of offering for its 22.8 stake on Russian and London exchanges. The company initially planned to place the stocks at $2.05-$2.45 per stock, hoping to have some $5 billion of capitalization. However, Uralkaliy said it would not offer its shares because “there is no chance to get an adequate evaluation of the company by potential investors.” Uralkaliy’s co-owner Dmitry Rybolovlev said in a press release that the market had not appreciated the company’s potential.
An investment bank which bid for the stocks at about $2.05 says that it was organizers of the IPO who failed to find clients for the shares because they were overpriced. Sources of Kommersant at Troika Dialog also considered the price too high. “This offering may be successful if the company has another try and lower the prices,” Troika Dialog said. Alfa Capital’s Pavel Laberko said that Uralkaliy’s management had too high expectations. “Companies which are now preparing for IPOs should note that investors are not ready to pay high premiums without any solid reasons. They give more attention to the stocks’ current market prices,” he said. Investors reacted to the news yesterday as Uralkaliy’s stocks fell 5.7 percent, down to $1.82 at the RTS exchange in Moscow.
Experts say that Russian companies have begun to put off their IPOs because of the current situation on the market. They say the IPO market is now dominated by portfolio investors who want a short-time growth and quick profits.
Times when Russia’s IPO market was emerging and every offering was an occasion are soon to be gone, analysts say. Russia saw a real IPO boom in 2005 when the number of placements grew six times, compared to 2004. Yields were high and companies offered their stocks at prices 10 or 20 times as high as yields on a stock.
Roman Andreev, vice-president at CenterInvest Securities, believes that “investors have saturated with Russian IPOs and they are no longer ready to pay lofty prices. There are plenty of examples when underwriters over evaluate stocks which went down after the offering.”
Indeed, investors were often disappointed in the stocks they had bought. For example, Komstar-OTS securities which were placed at $7.25 in February are now quoted at $6.4, or Amtel-Vredestein’s stocks now cost $4.7 after they were offered at $11 last November.
These trends may have a negative effect on upcoming IPOs. Russia’s giants Severstal, the Chelyabinsk Zinc Plant and Sistema-Gals are to place the stocks worth the total of $4 billion before the end of this year.
Analysts estimate that some 18 or 20 Russian companies may go public this year. The volume of offerings is expected to triple, to $13 billion, largely thanks to Rosneft.
Market players are still upbeat about the overall situation on the Russian market despite the news of Uralkaliy’s cancellation. Global demand on Russian IPOs remains high which was once again proved by an additional stock issuing of Otkrytye Investitsii in September.
Sergey Tyagai, Olga Kocheva, Alexaey Lampsi and Maria Chekasova
All the Article in Russian as of Oct. 12, 2006
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