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Russia: Initial equity sales hopes turn to dust

Issuers/investors baulk at valuation levels; Russia outperforms on the fund inflow front

Hopes of a Russian equity market bonanza at the beginning of the year have been soundly dashed with the cancellation of a trio of planned offerings and the slashing of the sole transaction that actually made it to market. The failed offerings have inevitably sparked controversy about the valuation levels placed on the stock by potential issuers and their lead managers and have called into question the prospect of a boom in IPOs from Russia this year.

"There’s clearly a big difference between where owners see value and where investors see value"

Roland Nash, Verno Capital

"There’s clearly a big difference between where owners see value and where investors see value," says Roland Nash, chief investment strategist at Russian fund manager Verno ­Capital in Moscow.

Although some bankers have sought to blame the issuance failures on emerging market contagion caused by the popular uprisings in Tunisia and Egypt, that explanation has been called into question by the fact that Russia continues to attract new money, according to the latest data from fund tracker Emerging Portfolio Fund ­Research (EPFR).

Consequently there are still arguably grounds for optimism about the potential for equity issuance by Russian corporates over 2011 as a whole, albeit at lower valuation levels than those being proposed by issuers and their advisers.

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