Wary of liquidity risk in Russia. Even as Russia’s equity markets are outperforming most global peers in 2011, the new issuance market remains very difficult. Current market performance is being driven by the oil and gas sector, while investors remain wary of domestic themes and of locking into new illiquid names.

Government has less need for cash. The current high average oil price lessens the financial pressure on the government to proceed with the $30 bln three-year privatization program. But the program is a key part of the reform agenda. One more sale is expected this year.

Mismatched expectations. Valuation remains both the key and the difficulty, a fact clearly illustrated when three of the four IPOs offered in February failed. Investors want a deep discount to reflect market risk and liquidity risk. Issuers still retain ambitions for premium ratings. Issues that offer exposure outside of extractive industries will fare better than more-of-the-same investments in extractive industries. Issues that raise money for expansion and debt reduction will fare better than those simply cashing out an existing owner.

Next IPO attempt in April. The next IPO is expected to come from RusAgro, Russia’s largest sugar producer. The company may attempt to raise $300 mln via a London IPO next month. Phone retailer Evroset may also attempt a listing in April according to media reports.


· The total value of potential new equity issuance originally targeted in 2011 from non-state sources was thought to be in the range $15–20 bln, while the state had hoped to place $10 bln of its $30 bln three-year program.

· That is far too ambitious in the current environment. If current market conditions continue through to 3Q11, the total private sector issuance may be in the range $5–10 bln and the state’s privatization program may be cut to about $6 bln.

· SPOs will again be a feature in 2011, with PIK Group next poised to try and raise $500 mln.

· Over a 3–5 year period, based on the companies that need to restructure over-leveraged balance sheets and fund future growth, the demand for equity issuance can be calculated in the range of $50–70 bln from the private sector and $45–80 bln from the state sector, including the $30–50 bln privatization program.

· Year-to-date, only $360 mln has been raised via IPOs and $3.3 bln from the state’s privatization program. Investors are unwilling to simply cash out existing shareholders without a much deeper discount. Demand for “more-of-the-same” investments in, e.g. metals & mining, is less attractive than opportunities to diversify portfolios.

· The greatest demand for new issues in 2011 is expected in industries that offer access to potential fast growth and in areas of the economy currently under-represented in the stock market. But only when the current global uncertainties improve.

· Many listed stocks in sectors outside of extractive industries currently offer better potential for investors (see table in side column).


Total equity issuance in 2010 reached $6.6 bln via 12 IPOs ($5.2 bln) and four SPOs ($1.4 bln). That excludes state equity injections and large equity stake sales from existing shareholders.

Only three of the IPOs have outperformed the RTS Index since the listing date, while three of the SPOs have beaten the index.