Ukraine overshadows market debut of Russia's Lenta

Reuters - UK Focus

* IPO priced at low end of range, shares down

* Will net around $480 mln for buyout giant TPG

By Megan Davies and Olga Popova

MOSCOW, Feb 28 (Reuters) - Russian hypermarket chain Lenta's stock market debut was clouded by political turmoil inUkraine on Friday as investors reined in their exposure toRussian companies.

The negative sentiment pushed Lenta shares below their pricein its initial public offering, which netted around $1 billionfor shareholders including U.S. private equity firm TPG.

Ukrainian President Viktor Yanukovich was driven from powerlast weekend after upheaval sparked by his decision to spurndeals with the European Union and improve ties with Russia.

Around $2.5 billion has been pulled from Russian equitiesthis year, partly due to the political upheaval in Kiev,analysts at VTB Capital said in a research note.

"Ukraine is getting scary and (investors) want to get out ofRussia," said one Moscow-based trader, who said the events inUkraine had no direct link to Lenta's business.

Lenta is among a number of retailers tapping into demandfrom foreign investors for consumer-oriented businesses inRussia, even as the country's economy slows.

Other consumer-focused IPOs are expected, such as children'sgoods retailer Detsky Mir, owned by oil-to-telecoms conglomerateSistema, corporate and individual loans bank CreditBank of Moscow (MCX: MMBM.ME - news) and German retailer Metro AG (Xetra: 725750 - news) 's Russiancash-and-carry business.

Lenta said the total size of the offering was $952 million,or $1.1 billion if an over-allotment option is exercised infull. It will give the company a market value of $4.3 billion.

The company set a price of $10 per global depositary receipt(GDR), at the lower end of a range of $9.5-$11.5. One share isequivalent to five GDRs.

The GDRs started conditional trading in London at $9.70.Conditional trading occurs ahead of a company's officiallisting, when an IPO can still be pulled.

STRATEGY CLASH

The IPO represents a payday for U.S. private equity giantTPG, which has had a tumultuous time with its Lenta investment.

TPG, with Russian bank VTB, took stakes in Lentain 2009 but disagreed over strategy with U.S.-born entrepreneurAugust Meyer, who owned 41 percent. That led to CEO Jan Dunningbeing ousted in favour of Meyer's nominee Sergei Yushenko.

TPG, VTB and another shareholder, the European Bank forReconstruction and Development, refused to recognise the change.

In late 2010, Dunning, accompanied by armed guards, triedto enter Lenta's offices only to be stopped by Lenta's ownsecurity guards, according to witnesses at the time. Meyer latersold his stake to TPG and VTB and Dunning was reinstated.

The amount that TPG and VTB invested in Lenta has not beendisclosed, but a banking source told Reuters in 2009 that theybought a 35.4 percent stake for $115 million. That would havevalued the whole company at around $325 million - meaning it hasgrown in value by 12 times since the original investment.

TPG, which has since built its stake to 49.8 percent, wasselling shares worth around $480 million in the IPO to cut itsholding back to around 39 percent.

VTB, which owns 11.7 percent, is selling shares worth around$115 million and the EBRD, with 21.5 percent, is offloadingstock worth around $205 million.

CONSUMER RUSH

Foreign investors have been keen buyers of consumer-orientedbusinesses in Russia, such as telecoms firm Megafon (MCX: MFON.ME - news) which went public in 2012 and Russian consumer creditcompany TCS which floated last year.

While Russia's economy is flagging - growth slowed from anaverage 7 percent a year to just over 1 percent last year andsome of Lenta's rivals have seen their expansion start to slow -consumption is expected to hold up, analysts at Citi say.

Lenta's IPO price implies a 2013 estimated price/earningsratio of 19.4 times - a discount of 17 percent to Magnit (MCX: MGNT.ME - news) 's GDRs,said Bank of America (TLO: BAC.TI - news) analysts.

Founded 20 years ago in Russia's second city of StPetersburg, the company operates 77 hypermarkets in 45 citiesacross Russia and 10 supermarkets in and around Moscow. Itreported a 38 percent rise in net profit last year to 7.1billion roubles ($202 million).

The banks advising on the IPO are JP Morgan Chase (Other OTC: JFTTL - news) & Co, Credit Suisse (NYSE: CS - news) , UBS (Xetra: UB0BL6 - news) , Deutsche Bank (Xetra: DBK.DE - news) and VTB Capital. TPG Capital is acting as aco-manager while Rothschild is financial adviser to Lenta.

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