Lenta, Russia’s second largest hypermarket chain, has announced it is planning an IPO, with global depository receipts (GDR) to be listed in both London and Moscow.
American private equity firm TPG holds a 49.8 percent stake in the company and will be offering shares to the market, alongside co-owners European Bank for Reconstruction & Development (EBRD) and Moscow-based VTB Capital. However, it is reported that no new equity will be sold.
The St Petersburg-based grocer, which aims to raise $1 bn, according to the financial press, is the first Russian retailer to list on the London Stock Exchange since 2010, when O’Key Group, the country’s third largest player, sold $419 mn in shares.
The latest IPOs by Russian firms in London have been met with mixed enthusiasm. MegaFon, the country’s second largest mobile operator, successfully raised $1.7 bn at the end of 2012 and its share price now trades 50 percent higher than its flotation level. But Tinkoff Credit Systems, which went public last October, saw its GDR price plummet by more than two thirds over the next three months.
‘Market leading EBITDA margins of 11.4 percent and the highest like-for-like sales growth in the industry of 10 percent,’ are some of Lenta’s key selling points for investors at a volatile time for emerging market equities, according to a person familiar with the matter.
Although the number of middle-class consumers is increasing, sales growth in Russia has slowed for the first time in three months. In addition, the rouble has tumbled to a record low following monetary policy tightening by the US Federal Reserve.
‘We believe that our customer proposition is quite a universal one and will help, if needed, to guide us through any economic slowdown,’ said the firm’s CEO Jan Dunning to Reuters, adding that the retailer’s ‘focus on promotions and selling Russian products gives it resilience’.
According to research firm Euromonitor, Russia is currently Europe’s second biggest retail market and should reach the top position by 2018. This could help Lenta, which operates 77 hypermarkets across the country and 10 supermarkets in the Moscow area, achieve its target of doubling its retail space over the next three years.
‘With TPG, one of the world’s major private equity firms, as its largest shareholder, the deal is significant as the listing will see a successful full cycle investment from major international investors in Russia,’ notes an adviser involved in the upcoming transaction.
A worldwide string of retail sector IPOs is expected to follow Lenta’s public debut, further proof that private equity funds are actively seeking to cash in on their investments in the current climate of lower volatility and recovering equity markets.
German retailer Metro announced in January it was planning to float its Russian Cash & Carry branch, while children’s chain Detsky Mir, part of the Sistema conglomerate, is also rumoured to be contemplating a listing.
More than 15 UK high street retailers – McColls Retail Group, discount retailers Poundland and B&M, furniture shop DFS and e-commerce firms Appliances Online and Boohoo.com, to name a few – are also expected to go public this year, according to the Guardian.
Meanwhile, Japanese group Fast Retailing is reported to be seeking a secondary listing in Hong Kong and JD.com, the Saudi-backed, Chinese online retailer, has recently filed for an IPO in the US, in what appears to be a listing race with e-commerce giant Alibaba, says Bloomberg.
