By Ilya Khrennikov
(Bloomberg) — Russian companies may raise the most money selling shares next year since 2007 as they repair balance sheets and resume expansion after the deepest recession on record ends, Renaissance Capital President Ruben Aganbegyan said.
Equity offerings in the mining, chemicals and retail industries will probably exceed $20 billion in 2010, Aganbegyan said in an interview at the Moscow headquarters of RenCap, the investment bank half-owned by Mikhail Prokhorov, the country's richest man. "This includes a fresh round of sizeable initial public offerings," Aganbegyan said.
Demand for Russian equities evaporated after the country's war with Georgia last August prompted an exodus of capital and the collapse of Lehman Brothers Holdings Inc. the following month froze global credit markets. Russian companies have sold less than $1 billion of equity this year, after about $6 billion last year, according to Morgan Stanley. That compares with $21 billion in 2006 and $36 billion in 2007, when Russia accounted for as much as 30 percent of IPOs on the London Stock Exchange.
"Many companies are looking to sell shares in order to reduce the pressure of debt on their equity capital," said Aganbegyan, 37. "Another reason companies are interested in IPOs is to turn their shares into a currency for acquisitions and expansion abroad."
United Co. Rusal, billionaire Oleg Deripaska's aluminum maker, is seeking to sell shares in Hong Kong to become the first Russian company to list in China. The Hong Kong bourse delayed its ruling on the application this week for at least the second time since October, even after Rusal completed a $16.8 billion restructuring of its debt to more than 70 creditors.
A successful Hong Kong sale by Rusal may help other Russian companies lure Asian investment, said Aganbegyan, who didn't include Rusal in his estimate for stock sales next year.
Just today, OAO GMK Norilsk Nickel, Russia's biggest mining company, said it may sell shares to help meet $3 billion of debt payments next year and drug wholesaler Protek said it may hold an IPO. Those announcements came hours after Globaltrans Investment Plc, Russia's biggest non-state rail cargo operator, said it raised $100 million selling new shares.
U.S., Europe, Asia
"Demand for Russian IPOs will come from investors in the traditional places, which are London, Europe and the U.S., though there might be demand in Asia for those Russian companies who trade with Asia," Aganbegyan said. "Asian demand has yet to be tested."
Russia's dollar-measured RTS Index of 50 stocks has risen 115 percent this year, making it the third-best performer among benchmark indexes tracked by Bloomberg, after its record 73 percent plunge in the second half of 2008.
Western investors have accounted for "at least" half of this year's stock gains, said Elena Titova, president of Morgan Stanley Russia, in an interview in Moscow. Titova said she expects Russian companies to raise "more than $10 billion" selling stock in 2010.
Russia's economy contracted a record 10.9 percent in the second quarter as prices for oil, the country's biggest export earner, and other commodities tumbled and the ruble lost 9.1 percent of its value against the dollar. The recession forced companies to slash costs, fire workers and renegotiate debt. Russian corporate debt to foreign lenders declined to $435 billion in July from about $500 billion a year earlier, central bank data show.
'Bullish on Russia'
"At the beginning of this year we didn't know what to do, how to keep staff busy and motivated," said Rair Simonyan, Morgan Stanley Russia's chairman. "When oil fell to $30 a barrel, the future for this country looked pretty gloomy. After summer though, we saw investors much more bullish about Russia. Now we're hiring again."
Now, with oil near $75 a barrel and the "worst of the crisis over," as Prime Minister Vladimir Putin said last week, companies are seeking fresh capital to expand.
Among the companies who have announced plans to sell shares next year are fertilizer producers OAO EuroChem and OAO UralChem, coal producers OAO Mechel Mining and OAO Siberian Coal Energy Co., and OAO Polymetal, the country's biggest silver miner and second-biggest gold producer.
The Kremlin plans to join the trend with a new wave of asset sales as part of President Dmitry Medvedev's drive to reduce the state's role in the economy.
The government plans to sell stakes in OAO Russian Railways, operator of the world's largest rail network, and shipping company OAO Sovcomflot as early as next year, while state-run oil producers OAO Rosneft and OAO Gazprom Neft have said they're considering stock offerings.
"It's pretty clear that the government doesn't want to sit on their stakes in companies," Simonyan said. "It's only a question of timing and market conditions — whether to do it next year or in 2011."
To contact the reporter on this story: Ilya Khrennikov in Moscow at firstname.lastname@example.org
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