Et Resurrexit? The Return of the Russian Equity Offering

After 10 months of drought, there are now signs of life in the market for Russian equity offerings.

In the first Russian placement since Acron’s $2.7 million LSE technical listing in August 2008, Alliance Oil raised $390 million - $265 million through the sale of convertible bonds and $125 million through the sale of new shares listed on NASDAQ OMX Nordic.  Riding on the back of rising oil prices, Alliance, formerly known as West Siberian Resources, exceeded its $325 million target with its June 12 fundraising.

Coupled with the fact that Russia’s RTS Index is currently the world’s best performing big market, up 70% year to date, Alliance Oil’s success is seen by some analysts as a bellwether for additional Russian offerings. Pavel Malyi, Executive Director of UBS in Russia, told Reuters that investors are “warming up not only to the debt markets but also to equities. Alliance Oil is a green shoot and in the second half [of 2009] there will be further activity.”

Though the biggest, Alliance Oil is not the only green shoot in CIS equity markets.  Earlier this month, AIM-listed Roxi Petroleum, which has operations in Kazakhstan, and Regal Petroleum, which operates in Ukraine, raised $0.5 million and $105 million, respectively, in secondary share placements.  At the end of May, Armenia saw its first IPO with hydropower plant Artsakh HPP raising $2.4 million on the local exchange.

It is certainly a rosier picture than market watchers dared to envision only a couple months ago - but we are not out of the woods yet.

Despite the recent rally, doubts remain as to continuing foreign appetite for Russia - a significant issue given that international investors underpinned the success of Russia’s massive equity offerings in recent years.  According to the Financial Times, much of the recent increase in investment activity has resulted from trading by existing investors. Foreign investors have committed little in the way of new money to Russia beyond what is required by benchmarking with emerging market indices, and as a result inflows have remained low.  Data from EPFR Global shows that emerging market investors are showing a marked preference for Russia’s BRIC counterparts - second quarter to date, $6.5bn of funds have flowed into China, $5.1bn into Brazil and $1.9bn into India, with Russia trailing at $1.4bn.

The proposed change in Russian listing rules will not help the case either, as the proposed restrictions on international share placements will limit foreign investors’ access to Russian equity (see Trevor Barton’s CrisisCrunch post of June 8).

Alliance Oil may well have turned on the tap for Russian equity offerings.  But the question is - can we expect a drip or two, a steady trickle or a renewed outpouring?

Possibly related posts:

1. No Water, No Float – Russian Regulator Set to Revise Listing Rules
2. IPO Pioneers: 9 in 10 listed Russian & CIS companies worth less today than at IPO
3. First Default by a Russian State-Owned Company Since ‘98: The Wax Begins to Melt on Sovereign Bonds
4. Russia-Focused Cross-Border M&A: Russian Companies Have Remained Acquisitive, But 2009 Outlook Is Bleaker
5. Russia’s IPO Market: What the Experts Think