Bloomberg News

Greek Concern Forces Elko to Delay Latvia’s First IPO in 8 Years

August 29, 2012

Elko Group AS, a Latvian computer wholesaler, has put off plans to hold the Baltic country’s first initial public offering in eight years as euro-region nations battle to avoid a Greek exit from the common currency.

“We need a more positive environment, when the market is hungry for some equities,” Chief Financial Officer Svens Dinsdorfs said Aug. 23 in an interview in Riga, the capital. “Sentiment can change during one week. Again some bad news, Greeks again say we won’t make it, and everyone is running and screaming, and the world is collapsing.”

Elko, whose sales fell about 40 percent in 2009, when international credit markets froze and Latvia’s economy shrank about 18 percent, predicts revenue will grow about 24 percent this year to $1.2 billion. The company, which distributes Acer Inc. (2353) notebook computers in Russia, forecasts profit will increase 19.3 percent to $16.1 million.

Latvia’s benchmark Nasdaq OMX Riga index has risen 2.8 percent this year, while Estonia’s stock market has risen 27 percent and Lithuania’s has gained 16.7 percent.

Elko, which had credit lines reduced, fired staff and cut pay during the crisis, has raised salaries and will increase a credit facility by $15 million to about $60 million from Nordic lenders SEB AB (SEBA) and Nordea AB. (NDA)

‘Extremely Tough’

“The crisis was extremely tough, so we had a tough 6 to 9 months, it was hell, and then we again returned to the path of earning money and growing from the bottom,” Dinsdorfs said.

For now, the euro-area turmoil is delaying plans to sell a stake on the stock exchange. Valuations are low across eastern Europe, according to Heiti Riisberg, head of asset management at Trigon Capital AS, based in Tallinn, Estonia.

“The valuations of most public companies in the Baltics, and the whole CEE region, are anything but demanding,” Riisberg, whose firm manages about 700 million euros, he said by e-mail. “Most privately held companies that have made it through the crisis in reasonably good shape are simply not willing to raise capital at such low valuations.”

Elko’s closest publicly listed peer is ASBISc Enterprises Plc (ASB), a Cyprus-based computer equipment retailer that trades on the Warsaw stock exchange (GPW), according to Riisberg. Even after its stock rose 45 percent this year, it’s still trading at 40 percent of its book value, he said.

Low Valuation

“It is difficult to see why Elko Group would be willing to go public at a valuation similar to this,” Riisberg said.

Some of Elko’s shareholders, such as investment funds that are expiring, preferred a share sale, said Dinsdorfs. Stockholm- based East Capital (ECEX) Asset Management AB owns 8.8 percent of Elko, and Amber Trust II S.C.A., a joint venture between Dankse Bank AB. and Firebird, a New York-based fund, holds 17.7 percent. The remaining shares are held by private investors.

While Elko prepared and filed a listing prospectus last summer, shareholders were unsure what the valuation would be because of the situation in the euro area that ultimately delayed the sale, according to Dinsdorfs.

“The main concern is about demand and everyone wishes for an IPO that’s oversubscribed,” he said. Still, “my Swedish investors might think quite differently.”

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net Hellmuth Tromm in Berlin at htromm@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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