Sistema floats for $1.4bn as top funds flock to Russia

Sistema, one of Russia's largest holding companies, completed the largest ever Russian IPO on Tuesday, when more than 300 funds piled into its $1.35bn London flotation.

  • 11 Feb 2005
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Sistema, which holds controlling stakes in Russia's leading mobile phone company and the Moscow fixed line telephone operator, attracted 17 of the world's top 20 institutional investors.

The company's founder Vladimir Yevtushenkov sold a 0.44% stake and Sistema raised new money by selling shares worth 16.1% of its enlarged capital.

Led by Credit Suisse First Boston and Morgan Stanley, the IPO was crucial for the health of the Russian equity market. Failure would have undone the gradual, but continual progress made by the market over the last two years.

The deal's resounding success, with the book 2.6 times covered, has reinvigorated a market that had been drained of confidence by Yukos's death struggle with the Russian government and surprise tax demands against other companies.

Sistema's IPO follows Deutsche Telekom's hugely popular sale in December of a $1.7bn stake in Mobile TeleSystems, the largest Russian mobile phone operator, which was the largest Russian equity sale ever.

Sistema owns 50.4% of Mobile TeleSystems (MTS), as well as 55.6% of Moscow's MGTS phone company and investments in insurance, property and retailing.

While Deutsche Telekom's sale of MTS shares showed that investors had demand for Russian equity issues, Sistema's warm reception leaves the door wide open to further flotations.

A banker working on the deal said he expected a further five or six companies to float in the first half of the year, with a total value of $2bn. However, he doubted there would be a flotation this year to match the size of Sistema's.

Another banker said that his bank had undisclosed mandates for Russian IPOs which would be measured in ?billions, or hundreds of millions? of dollars.

Sistema's success resulted from the sort of huge marketing effort more familiar in a large privatisation than a corporate IPO.

The strong institutional take-up supports the view of Russian equity market specialists that investors want stocks offering exposure to the booming Russian consumer sector, partly to diversify away from oil, gas and mineral companies.

Lead managers CSFB and Morgan Stanley priced the 79.6m global depositary receipts, each equal to one-fiftieth of an ordinary Sistema share, at $17, just below the mid-point of the IPO's range of $15-$19.50.

At that price the offer was 2.6 times oversubscribed, though the deal had been covered within the range since last Friday (February 4).

Perfect debut

Sistema's London market debut on Wednesday confirmed the accuracy of the pricing. The shares closed the day up 2.65%, after hitting a high of $17.75.

A banker working on the deal said that most of the trades had been completed at a level about 3% above the offer price.

Yesterday (Thursday) Sistema's stock fell slightly to close at $17.25, 1.47% above the IPO offer price. The low for the day was $17.15, still 0.88% above the offer price.

Another banker working on the deal said he thought the stock was unlikely to dip below this level, as institutional demand for Sistema's shares was still strong.

The leads have a greenshoe, which if exercised will raise the total of the IPO to $1.56bn and increase the percentage of Sistema's share capital sold from 16.5% to 18.98%.

Bankers working on the deal expect the greenshoe to be used, given the way the stock has traded over its first two days, although they were reluctant to predict where the shares would go from here.

?Investors were clear on where they would buy at and what they thought was a fair price,? said an equity banker working on the deal in London.

The keys to success

Sistema owed its success to a convergence of many factors, some within the company's control and some outside.

The Standard & Poor's upgrade of Russia's credit rating to investment grade on January 31 gave investors new faith in the country. The Russian stock market performed well over the marketing period of the IPO, also supporting investor confidence.

Specific to Sistema itself was its success at persuading investors that while the company could be seen as a surrogate investment in MTS ? which helpfully announced strong growth in subscriber numbers last month ? there were also advantages to investing in a conglomerate in Russia, such as conglomerates' ability to raise finance.

Finally, the two week management roadshow, which involved over 60 group and one-on-one meetings with investors, as well as numerous conference calls, was well received by the market.

For bankers working on the deal, the large investor lunches held in London and New York, where investors were forced to stand for lack of space, seemed to come from a different era, and were certainly unlike anything seen over the last three years.

The leads were forced to divide the roadshow team for the last days of marketing to meet the demand from investors, with teams criss-crossing Europe.

The deal also confirmed the return of US funds to European issues, with about a third of the shares going to US accounts, the second largest group after UK-based investors, who bought about 40% of the issue.

German institutions were also large buyers of Sistema's stock, and several of the biggest orders for the shares came from top German institutional investors.

The IPO dilutes Yevtushenkov's holding from 78% to 65.5%. Sistema, Yevtushenkov and his fellow directors are now subject to a 180 day lock-up.

Though some might argue the London listing was not strictly an IPO, as Sistema already had a listing on the Russian Trading System, this would be unfair. Any Russian firm wishing to list abroad must first have a domestic listing.

Sistema's Russian listing is what one banker described as a ?technical? listing, with no trading actually taking place in its stock, it purely facilitatated the London IPO.

  • 11 Feb 2005

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 17 Oct 2016
1 JPMorgan 310,048.18 1328 8.75%
2 Citi 285,934.48 1059 8.07%
3 Barclays 258,057.88 833 7.29%
4 Bank of America Merrill Lynch 248,459.06 911 7.01%
5 HSBC 218,245.86 884 6.16%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 29,669.98 55 6.95%
2 UniCredit 28,692.62 136 6.73%
3 BNP Paribas 28,431.90 139 6.66%
4 HSBC 22,935.49 112 5.38%
5 ING 18,645.88 118 4.37%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 14,593.71 79 10.38%
2 Goldman Sachs 11,713.19 63 8.33%
3 Morgan Stanley 9,435.23 48 6.71%
4 Bank of America Merrill Lynch 9,019.27 40 6.41%
5 UBS 8,763.73 42 6.23%