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Russian ECM hopes could be another false dawn

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The possible flotation of a Russian hospitals group is being billed as a revival of the country’s IPO market, with more deals to follow. Bankers pointed to the recent US-Russian summit in Switzerland as cause for optimism but investors should remain as sceptical as they appear to be about the rest of the IPO market.

Once one of the darlings of emerging markets investors, Russia used to generate giant IPOs regularly as the economy boomed in the 2000s and former state enterprises such as Rosneft were listed on the stock market.

But times change. Over the past decade, Russia’s equity market has been hamstrung by sanctions, such as Russia’s annexation of Crimea in 2014, prompting the US and the EU to impose sweeping proscriptions. This led to a large crash in the value of the ruble and a deep sell-off of Russian stocks.

The US’s decision four years later to sanction Russian companies and individuals, including Oleg Deripaska, effectively shuttered the IPO market once again for more than a year.

Volumes have since picked up, although there have been some failures, such as the postponement of Nordgold’s listing last month.

Then there is the wider IPO market to consider. Banks are bombarding investors with wave after wave of deals. Consequently, ever more are failing to get done as buyers snub the companies they think are overpriced or of too low quality.

Russian stocks are still cheap, despite the rally in commodity prices, as the global economy begins to recover from the pandemic. But all it takes is one flash point for the illusion of stability to evaporate. Investors should remember that things tend to be cheap for a reason.

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