Emerging Europe IPO trio gets a mixed reception from wary investors


Lucy Fitzgeorge-Parker
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Slovenian, Kazakh governments deliver on privatization promises, while price concerns scupper listing plans of Belarusian retailer Eurotorg.

A trio of chunky IPOs from emerging Europe met with a mixed reception from wary investors in London in early November.

To the surprise of many in the market, two long-promised privatizations – of Slovenian lender NLB and uranium producer Kazatomprom – made it across the line, while a leading private-sector retailer had to postpone its listing.

On November 9, the Slovenian government finally delivered on commitments to the European Commission, made at the time of a state bailout of the country’s leading banks in 2013, to sell more than half of market leader NLB.

A previous listing attempt in June 2017 was cancelled when politicians rejected the proposed minimum offer price – which valued the bank at €1.1 billion – as too low. That prompted the EC to threaten to appoint a divestiture trustee if the sale was not completed by the end of this year.

There had been concerns that Slovenia’s volatile politics would again scupper the deal, particularly given the challenging external market conditions.

One of the biggest drawbacks of the NLB IPO was that it’s more of the same 
 - Matthias Siller, Baring Emerging Europe

Despite pricing below the level deemed unacceptable last year, however, the listing went ahead in London and Slovenia’s capital, Ljubljana. Slovenian state holding company SDH placed 59.1% of NLB at €51.50 a share, giving a market capitalization of around €1 billion.

The deal was supported by the European Bank for Reconstruction and Development, which took a 6.25% stake in NLB more than a decade after selling an earlier holding in the bank.

Slovenian authorities now have until the end of next year to complete a second placement of NLB stock. Under the terms of the EC agreement, however, the state is entitled to retain 25% plus one share of the bank, an option that is supported by politicians from all parties.

For some investors, this reduced the appeal of the stock.


Matthais Siller,

“One of the biggest drawbacks of the NLB IPO was that it’s more of the same,” says Matthias Siller, a fund manager at Baring Emerging Europe. “Financials are the largest sector in the MSCI Emerging Europe Index and governments are the single largest shareholders of those assets.

“If you want partially state-controlled banks – and there are clearly reasons why you might not – there are already plenty in Russia, Poland and elsewhere.”

He notes, however, that the pricing on NLB was attractive.

“That’s how the deal got done,” he says. “It was definitely priced to sell.”

Overdone expectations

By contrast, price proved a sticking point for potential investors in Eurotorg, Belarus’s leading food retailer, which pulled a London IPO on November 6 after failing to achieve its target valuation.

“Price expectations were a bit overdone,” says one emerging market fund manager. “Investors wanted a substantial discount to Russian retailers, given the relative size of the markets, and those names are currently among the cheapest stocks in the sector globally.”

Bankers involved in the deal – which would have been the first big international IPO from Belarus – say the pricing issue was exacerbated by ongoing outflows from emerging market funds.

“Investors agreed that this is a very high-quality company,” says one. “But without fresh cash coming into their portfolios, they would have had to sell something in the Russian retail space to buy it, and those names are down 40% this year. It’s just not something people wanted to do going into year-end.”

We could not disappoint investors who were anticipating concrete steps [on privatization] for the last three years 
 - Nurlan Rakhmetov, Samruk-Kazyna

Concerns have also been raised about liquidity, given the relatively small target size of $200 million for the IPO, while some investors also struggled to get comfortable with the jurisdiction.

“Pricing Belarusian risk was always going to be challenging, given that it was the first such stock coming to market, and from a country which is not so transparent and whose direction is very unclear,” says an emerging market fund manager.

Similar considerations did not prevent Kazakh authorities from completing an IPO of 15% of uranium producer Kazatomprom on November 13, although details on how this was achieved were hard to come by.

Despite being downsized during marketing from an initial target size of 25% of the company, the deal – which was listed on Astana’s new stock exchange as well as in London – priced at the bottom of the proposed range.

According to sovereign wealth fund Samruk-Kazyna, which is managing Kazakhstan’s privatization programme, nearly half of the $450 million listing was placed with local buyers – an announcement that raised eyebrows, given the limited size of the Kazakh investor base.

Delivery on commitments

A source close to the IPO – the first in a planned series of listings of $70 billion of state assets that was originally announced in 2015 – says it had also attracted “a fairly decent spread” of international investors but declined to elaborate.

“I think the global coordinators used all the means they had to get this over the line and allow the Kazakh authorities to deliver on their privatization commitments,” says an emerging market investment banker. “There was a lot of political will behind it.”

This was supported by comments from Samruk-Kazyna.

“We could not disappoint investors who were anticipating concrete steps [on privatization] for the last three years,” says Nurlan Rakhmetov, the fund’s head of privatization.

He added that the sovereign wealth fund was also aware of the need for a successful deal to set a precedent for future listings of state assets.

“That is why we put enormous efforts to meet with a large number of investors and convince them to become shareholders in Kazatomprom,” says Rakhmetov. “The completion of this transaction gives a positive signal to the market that Samruk-Kazyna is adhering to its plan to make its largest national portfolio companies public.”

Reports subsequently emerged that Kazakhstan’s state pension fund had taken up to a third of the total listing. Samruk-Kazyna confirmed that the pension fund had participated in the IPO, but declined to comment on the size of its investment.

Kazakh authorities have promised to list a further five companies by the end of 2020, including energy firm KazMunaiGaz and rail operator Kazakhstan Temir Zholy.

The next IPO candidates will, however, likely be Kazakhtelecom and national carrier Air Astana, adds Rakhmetov.