This week, Megafon raised $1.7 billion by trading approximately 15% of its shares on the London and Moscow stock exchanges simultaneously. Although the order book for the IPO was oversubscribed, the Russian telecom operator priced each share at $20, at the bottom of the $20-$25 range, placing the company’s total valuation at $11.1 billion.
Putting aside current market conditions, which analysts believe are not the most favorable, many investors view companies from Russia and other former Soviet countries with some suspicion.
“The fundamental problem comes down to governance. People were burnt with Russian IPOs before,” Anthony Fry, adviser to the board at Espirito Santo Investment Bank, said in an exchange with CNBC.
Megafon is controlled by Alisher Usmanov via the operator’s main shareholder Garsdale Services. A Kremlin-connected Russian billionnaire, Usmanov is also a key shareholder of the Mail.ru Group, the LSE-listed Russian Internet giant, and of DST, a leading later-stage Internet investment fund that operates globally.
Earlier this month, Goldman Sachs dropped out of the IPO preparation for Megafon in a move that many observers believe was related to concerns over corporate governance.
In this context, an awkward move by Usmanov’s public relations company – details of the billionaire’s past were recently removed from his Wikipedia entry – did not go unnoticed, CNBC noted.
But many investors have been reassured by Usmanov’s pledge to restructure his assets and those of his partners in order to retain overall control of the company, complying with a demand of the UK Listing Authority. Another reassuring move was the appointment of U.K. businessman and ex-Minister Lord Myners as Megafon’s chairman.
The float received a boost when Lars Nyberg, the head of Nordic telecom group Teliasonera and a member of the Megafon board, said he would personally buy $2 million worth of Megafon’s stock, while Teliasonera, a shareholder of the Russian company, sold down its stake.
Another supportive move came from a large global investment fund which placed an order for around $280 million worth of Megafon stock, or more than a tenth of the issue, Reuters reported from unnamed sources.
Analysts, however, have offered diverging opinions on the company’s growth perspectives. One the one hand, the Russian market of traditional mobile services is close to saturation, with a penetration rate of over 150%.
“Megafon is five years late with its IPO, as the phase of active growth of the Russian telecom market is already over,” Evgeny Golosnoi, an analyst at Metropol, told Reuters.
Megafon’s rivals MTS and Vimpelcom went public in 2000 and 2010, respectively.
On the other hand, Megafon is a strong player in next gen data services. Through an alliance with Scartel (Yota), Russia’s leading WiMAX and LTE operator, Megafon is pioneering 4G deployment in Russia. The company already boasts the biggest market share of mobile data revenue, with 36.5% of the market in the second quarter of 2012, Alex Kazbegi of Renaissance Capital noted in an interview with CNBC.
“But other providers are snapping at [Megafon’s] heels,” he added.
