However, strong domestic macroeconomic and microeconomic fundamentals should help to ease investor concerns, say analysts.
With a sizeable chunk of the headline initial and secondary public offerings from the country performing poorly since launch, many prospective issuers are said to be reconsidering their issuance plans, preferring to wait for better market conditions later in the year or in early 2008.
It could prove a high-risk strategy, however – the March 2008 presidential elections are widely expected to increase the perceived political risk attached to Russia. Although the recent government reshuffle in Russia, with previously obscure technocrat Viktor Zubkov appointed as prime minister, barely caused a ripple, some prospective offerings could be frozen out of the markets if there is a heightened sense of uncertainty surrounding the Russian economy in the run-up to next year’s poll.
Although $25 billion out of the forecast $30 billion-worth of stock offerings from Russia in 2007 has already been launched, the market environment for further issuance looks far less friendly than before the summer. Of the big stock offerings from the country, a number are already trading well down on their issue prices, muddying the waters for those companies that had hoped to come to market in the third and fourth quarters. The share price of VTB, for example, which came to market in May with an $8 billion IPO, had fallen from $10.55 to $9.58 by late September. Other issuers have fared just as badly or worse. Tech company Sitronics, which came to market in February with a $400 million deal at $12 per global depositary receipt, had slumped to $5.85; property developer AFI Development was at $9.45 having got away its $1.4 billion May offering at $10.55; and miner Polymetal, which raised $605 million in February, was at $6.28, having issued at $7.75.
It’s not all bad news, however. Even the poor performers are recovering strongly from their lows of the summer and several companies have recorded impressive price rises since they came to market.
For example, restaurant chain Rosinter is at $43, having launched at $32 in June; and real estate company Open Investments is at $294 compared with $180.75 in May when it launched its secondary share offering. The company is preparing to sell an additional 2 million shares via ING and Renaissance Capital.
Tom Mundy, equity strategist at Renaissance Capital in Moscow, says that companies that have exposure to Russia’s consumer and infrastructure development boom will remain in favour with investors, and he expects stocks in the financial sector to recover from the contagion effect of the sub-prime problems in the US, and oil and gas shares to perform better on the back of strong company results.