RBC scores first IPO home goal


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Analysts doubted that there would be enough investor interest for a Russian media and IT company employing just 500 people to launch the country's first ever domestic IPO but RBC Information Systems has done it. "Analysts had got used to looking at hugely capitalized companies such as Gazprom," says general director of RBC, Yuri Rovensky. "In comparison, we look very small, which made some say we were not interesting for the investors." 

The issue size may have been small - the company only raised $13.28 million from its simultaneous placement of 16 million shares on Russia's two stock exchanges, RTS and MICEX - but the significance could be great. To date all Russia's IPOs have been issued on foreign exchanges. Now RBC's IPO has closed almost five times oversubscribed and Russia's benchmark equity index, the RTS, is trading at pre-1998 crisis levels, the way is open for other companies to follow. 

"A lot of sceptics said we would have to go to America because there was more money there. But for our business there was more than enough money in the domestic market," says Rovensky. In fact, the deal also attracted some foreign funds and banks. "They had a unique chance to diversify their profile away from oil and gas," he says.

Rovensky says the time was right for the IPO - Russia's macroeconomic conditions are improving, the political situation is more stable, and the company has grown significantly and is regularly turning in increased profits. Nevertheless, doing the first deal was always going to be a gamble - MICEX didn't even have a description of how a domestic IPO should be executed before the issue. It was particularly risky for a company operating partly in the volatile internet sector, so what was the attraction of going first?

"We are already reporting on financial and business news, so we hoped that if we give a good example, hundreds of mid-sized companies will follow and the market will be more alive, with more demand for information about this," says Rovensky. "So it's also part of the development of our business."

He refuses to acknowledge comparisons with the internet IPOs that characterized the dot com boom and bust, saying that the internet is just the delivery mechanism for RBC's media coverage. "And RBC is not a start-up," he adds. "It is profitable with a 10-year successful history."

Yet other equally successful companies have shunned the local market. Wimm Bill Dann's chairman David Iakobachvili explained at the annual Russian Economic Forum in London last month that although the company will launch on the RTS at some point, the company did its highly successful IPO on the NYSE in February because it required the greatest transparency. "We have the magnifying glass on us and sometimes with prejudice," he said. "Of course, the company had some things that were famously not in the open but we have come a very long way in a short time."

The value of transparency

Rovensky says that RBC has been internationally audited for three years and has four independent directors on the board. "If you can't show the market huge assets, you have to show them transparency. Russia's oil and gas companies underestimated quite significantly the need for this."

The deal gives the company a capitalization in line with the $82 million "conservative" valuation by underwriters Aton Capital. But some analysts have questioned the credibility of this valuation, as well as its subscription figures and revenues, leading some to view the IPO as a good PR turn but not one that will bolster future confidence in the market.

A lot now hinges on this company's future performance.