Global volatility in the credit and equity markets could postpone a handful of marquee IPOs on foreign stock markets planned this year by Ukrainian businesses.
Global volatility in the credit and equity markets could postpone a handful of marquee initial public offerings (IPOs) on foreign stock markets planned this year by Ukrainian businesses, analysts said.
Just last year, experts predicted Ukrainian companies could raise more than $3 billion through IPOs this year.
Sinking equity markets and expectations of a US recession may cause some Ukrainian companies to delay their plans to go public until a possible upturn late in the year.
“Companies will struggle to achieve desired levels of valuation in this market environment and hence, will either postpone their IPOs or will look for alternative financing routes,” said Peter Vanhecke, managing director and head of investment banking at Renaissance Capital Ukraine.
Interpipe Corp. and Finance and Credit Bank are large companies that haven’t decided on their listings, while developer XXI Century Investments already confirmed its postponement. Poor performance of world equity markets could also further dent share prices on Ukraine’s domestic stock market, which has been drifting downwards in recent weeks in line with global trends.
Ukrainian companies are not alone in waiting for better market conditions. This week 25 multinational companies, including American clothing retailer Tommy Hilfiger, Danish energy company Dong Energy, and Chinese retail chain Maoye International Holdings decided to delay their IPOs. As a result of ongoing uncertainty, it is a challenge to raise capital on public markets, Vanhecke said.
The climate was different last year, when Ukrainian companies, eager to tap into fresh investments for modernization and expansion efforts, raised between $1.5 and $2 billion by floating stakes in their companies on foreign exchanges through IPOs and private placements. While a handful of companies took their Ukrainian assets public earlier, much of the action shifted into high gear after the 2004 Orange Revolution put Ukraine on the radar screens of international investors.
Nevertheless, many investors and brokers set their sights on Ukrainian billionaire Victor Pinchuk, who last year announced plans to float some of his biggest assets on the London Stock Exchange (LSE) this year. The top managers overseeing his massive portfolio of industrial and media assets said last year their plans envisioned an IPO for London this spring. Although the company is conducting a strategic review, which includes the IPO option, no timeline can be set since no final decision has been made, said Valeriy Kozlov, investor relations officer at Interpipe.
“When evaluating the possibility of such an offering, Interpipe will take into account prevailing market conditions,” Kozlov said.
Other Ukrainian billionaires, including the country’s richest tycoon, Rinat Akhmetov, planned IPOs for 2009 or later.
At least one Ukrainian company has publicly admitted to putting off a listing.
XXI Century, a leading real estate developer in Ukraine that raised $140 million through an IPO on the London Stock Exchange in 2005, planned to conduct a secondary listing for its shares in the first quarter of 2008 on the Warsaw Stock Exchange. The group hoped a secondary listing in Warsaw, rich in pension fund cash, would increase exposure for its shares. However on Jan. 25, the company announced it indefinitely postponed the additional listing after another developer, Kyiv Donbass Development (KDD), raised $130 million, only half of what it expected, in a December listing.
The most high-profile Ukrainian IPO on a foreign market thus far came last June, when 34-year-old Ukrainian billionaire Kostyantin Zhevago floated his iron ore assets on the LSE. Swiss-registered Ferrexpo, owner of a majority stake in Poltava Ore Mining, raised $420 million by listing a 25 percent stake in London.
Zhevago contemplated taking other assets to the market this year, including his Finance and Credit bank and heavy truck manufacturer KrAZ, or the Kremenchuk Automobile Factory.
Finance & Credit is still aiming for a March IPO on LSE’s Alternative Investment Market, but is also keeping the option of waiting until 2009, news reports said.
“Before the financial markets downturn, we projected that at least nine Ukrainian companies would go public in 2008,” said Tetyana Orlova, an analyst at Alfa Capital Ukraine. But now “we expect about five to six Ukrainian companies to conduct IPOs” this year, she said.
Companies likely to delay listings include Pinchuk’s Interpipe, poultry giant Myronivskiy Khlibprodukt and Milkiland Corp. dairy. Yet Orlova said the agricultural sector will announce some small IPOs in 2008 “as the world prices for agricultural commodities remain high, as well as interest in Ukrainian black earth (chornozem).”
Concorde Capital expects “about 25 IPOs and private placements in 2008 will still bring Ukraine about $3 billion in investments,” said Oleksandr Omelchuk, director of investment banking. Share offerings will be at least 15 percent and range up to 30 percent, he said, averaging 20 percent.
While some companies could find themselves short of badly needed investment cash, overall the Ukrainian economy won’t be sharply affected by the world equity crisis, said Erik Berglof, chief economist at the European Bank for Reconstruction and Development (EBRD) on Jan. 23.
But growth in Ukraine and other emerging markets in Eastern Europe will slow as a result.
“The region is holding up well, but it will be affected,” he said. “As a result, the EBRD is expecting lower growth in the region this year of about half a percentage point.” Late last year, EBRD forecasted average growth in Ukraine at about 6.1 percent. Now Berglof expects the growth to be at a level of 5.5 percent. “This is still a fast-growing region with strong fundamentals,” he added.
