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Banking

Russian IPOs: Bankers warn that bubble might burst

Overvalued IPOs give cause for concern. Some bankers are becoming wary of damaging their reputation with rushed or over-valued Russian IPOs. Two banks dropped out of a deal last month and some analysts urge that caution be exercised in further IPOs.

Richard Ogdon, executive director of Uralsib bank, says: “There’s a risk of the IPO market being ruined by overexuberance.” His comment comes after Morgan Stanley dropped out last month from the IPO of Russian meat processor Cherkizovo after a disagreement over the company’s valuation.

Another book-runner, Russian brokerage Troika Dialog, later also walked away from the deal, leaving two Russian brokerages – Renaissance Capital and Gazprombank – as sole book-runners. Uralsib later joined the syndicate.

Morgan Stanley valued the company at between $500 million and $600 million, which is half what Renaissance Capital valued it at. Cherkizovo’s owners sided more with Renaissance Capital’s valuation so, after a dispute, Morgan Stanley walked away. The IPO eventually valued the company at $900 million, after a 27% stake was sold for $250 million.

Rich pickings in London

This year is expected to be a record year for Russian IPOs, with well over $10 billion set to be raised. Russian IPOs have been a huge cash cow for London banks, lawyers, PR firms, and even a former minister. In January, one Russian bank, Uniastrum, hired former UK chancellor of the exchequer Lord Lamont to be chairman of its advisory board in preparation for a London listing.

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