Consumer sector IPOs under threat

Analysts say the recent market turbulence is pushing this year’s wave of initial public offering postponements into the consumer sector, with tobacco distribution giant Megapolis likely to be the next company to withdraw its listing.

The company, which controls around 70 percent of the Russian and 50 percent of the Ukrainian wholesale tobacco market, planned to list up to 30 percent of its stock on the London Stock Exchange this fall. Reuters values the company at around $6-8 billion.

But sources close to the organizational process of the offering told Kommersant this week that the IPO was likely to be postponed due to poor market conditions.

© RIA Novosti. / Valeriy Melnikov

Handset retailer Evroset abandoned plans for an IPO in April

Megapolis is not the first consumer sector company to postpone an offering in recent months, nor is it likely to be the last. Major cell-phone handset retailer Evroset abandoned its IPO plans in April after asking for too high a valuation and shoe retailer Tsentrobuv postponed its planned offering in mid-August.

“The unstable situation on the stock markets is the main reason consumer sector companies are postponing their IPOs,” said Maxim Klyagin, Consumer analyst at Moscow-based Finam investment bank. “Tsentrobuv postponed due to high volatility in August.”

The shoe retailer’s fate is expected to be shared by the numerous other consumer companies that were planning listings before the end of the year, including auto dealer Genser, tobacco distributer Mercury and cooking oil manufacturer Yug Rusi.

This year has been a bad one for Russian IPOs in general, with several metals and mining companies pulling listings in the first quarter, followed by Russian Helicopters and Domodedovo Airport. Analysts attributed those offering postponements to issuers overvaluing their shares.

The market downturn is also expected to push back plans for a secondary public offering of Sberbank this month. The listing of a 7.6 percent stake in the government- owned company is the jewel in the crown of the state privatization program until 2015.

“In the current market situation, it looks like the privatization plans will be delayed but the ideas are still there,” said Oganisian Ovanes, strategist at Renaissance Capital investment bank. “There is likely to be a window of opportunity for Sberbank’s offering – they just have to be prepared for it. I think it will happen sometime in the fall.”

Consumer sector companies have historically been relatively strong performers on the Russian stock market so the potential IPO withdrawals are a sign of the current uncertainty.

Kommersant suggested that the government’s proposed smoking ban may also be playing a role in Megapolis’s potential withdrawal plans. The ban is expected to considerably reduce smoking consumption in Russia (currently among the highest in the world) by prohibiting smoking in indoor public places and limiting cigarette sales by 2015. Major tobacco companies like Megapolis are likely to bear the brunt of the drop in cigarette sales.

But Klyagin of Finam says the markets are probably playing a greater role in the company’s concerns.

“The reforms will certainly be putting pressure on the company, but since the process is relatively long-term, the concerns are probably taking a secondary role to the market conditions,” Klyagin said.

He added that the offerings planned for this year will likely take place in 2012 instead.

“In the mid-term, if the market stabilizes, the offering plans will be fulfilled,” Klyagin said. “I think we will see several interesting debuts in 2012. In the long-term, firms orientated toward domestic demand will be viewed as more attractive in the unstable market.”

Read other articles of the print issue “The Moscow News #69”

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