Ilya Khrennikov & Ruth David
OAO MegaFon (MFON), Russia’s second-largest
mobile-phone operator, fell in its first day of trading after
raising $1.7 billion, signaling investor skepticism toward
emerging-market wireless assets amid a slowing economy.
The stock fell as much as 2.8 percent and closed
down 2 percent at $19.60 in London. MegaFon sold stock at $20 each,
at the bottom of its estimated range of $20 to $25 in the biggest
initial offering by a Russian company in three years.
MegaFon competes with Russia’s largest mobile
operator, OAO Mobile TeleSystems, and smaller rival VimpelCom for
subscribers in a market where most people already have wireless
handsets. IPOs of companies in Europe this year have seen average
returns of 8.1 percent, according to data compiled by
Bloomberg.
MegaFon had postponed an IPO marketing campaign
in October, raising investor speculation the demand may have
trailed expectations amid Europe’s sovereign debt crisis. The same
month, lender OAO Promsvyazbank called off its IPO on the last day
of the sale, saying offers it was getting for shares to be listed
in London didn’t reflect “fair value” for the bank.
“MegaFon’s price decline today shows that the
demand level wasn’t strong enough,” said Alexander Golovtsov, who
helps manage $2.8 billion at Moscow-based UralSib Asset
Management.
Price Decline
Global stocks declined for a third day on
concern budget talks to avoid the U.S. fiscal cliff have made
little progress, with the MSCI All-Country World Index (MXWD)
losing 0.4 percent.
“MegaFon is declining today with the rest of
Russian stocks as global investors are concerned with the fiscal
crisis in the U.S. and reduce their exposure to emerging markets,”
Luis Saenz, head of equity trading at BCS Financial Group, said by
phone from London. “MegaFon is a great company, while the history
of Russian IPOs shows it’s often cheaper to pick shares from the
secondary market after the offering.”
MegaFon’s shares could rebound in the next week
on the prospect of its inclusion in the MSCI Russia Index (MXRU)
because of the company’s size and liquidity in the stock, Saenz
said.
Excluding MegaFon, IPOs in Europe, the Middle
East and Africa this year raised $10.6 billion, less than a third
of what companies did in the same period in 2011, Bloomberg data
show.
Network Expansion
The IPO is part of a shareholder agreement
reached in April with Alisher Usmanov, the Russian billionaire who
controls MegaFon, to resolve disputes between Stockholm-based
investor TeliaSonera (TLSN) AB and the venture’s local owners.
Usmanov will keep a stake of about 55.8 percent and TeliaSonera
will retain a 29 percent holding, Moscow-based MegaFon said in a
statement today.
MegaFon and TeliaSonera sold a combined stake of
about 15 percent in the IPO, which is the biggest by a Russia
company since United Co. Rusal (486)’s sale almost three years ago.
MegaFon will use its proceeds to repay or refinance debt and to
expand its network.
MegaFon said the IPO gave it a value of about
$11.1 billion. That valuation excludes the shares it holds in its
treasury. The size of the IPO offering excludes the so-called
overallotment option to cover extra demand, MegaFon said.
The sale comes on the heels of an offering by
another phone carrier, Telefonica Deutschland Holding AG, which
raised 1.5 billion euros ($1.94 billion) in Europe’s largest IPO
this year.
“Selling shares at the bottom of the
range still could be considered a success because the company was
late coming to the market and the market conditions weren’t
favorable for any IPO of this size,” said Evgeny Golosnoy, an
analyst at IFC Metropol in Moscow. “The price range was quite high,
and even its low end implied almost no discount to established
peers.”
Russia Competition
Russian mobile market will grow about 5 percent
this year to $27.6 billion and is set to expand at the same pace
through 2015, said Anton Pogrebinsky, an analyst at research firm
AC&M Consulting in Moscow. The share of non-voice services,
including data transmission, is set to increase from 20 percent
this year to 30 percent in 2015, he said.
“While MegaFon may grow faster than the market,
the sector has matured and the peak of its rapid growth is in the
past,” Pogrebinsky said.
Russia’s mobile penetration was 161 percent at
the end of September, according to AC&M, meaning there are more
mobile- phone connections than people. MegaFon had 62.8 million
users in Russia at the end of the third quarter compared with MTS’s
70.7 million subscribers and 56.2 million customers using VimpelCom
in Russia, according to AC&M.
TeliaSonera, Sweden’s largest phone company,
helped set up MegaFon in 2002 when the Nordic company was created
in a merger with Finland’s biggest fixed-line operator and they
combined their Russian assets. Governance and strategy disputes
with Russian partners later plagued the venture.
As part of a shareholder settlement in April,
when billionaire Mikhail Fridman’s Altimo cashed out of the
operator and Usmanov boosted his ownership, MegaFon agreed to pay
the higher of 50 percent of net income or 70 percent of cash flows
in dividends.
Morgan Stanley (MS) and OAO Sberbank managed
MegaFon’s share sale, with help from Credit Suisse Group AG (CSGN),
Citigroup Inc. (C) and VTB Capital.
http://www.bloomberg.com/news/2012-11-28/megafon-raises-1-7-billion-as-ipo-is-priced-at-low-end.html