Russia's Central Bank to Sell Bourse Stake After Rally

Bloomberg, 02.07.2014

Russia's central bank sold half its stake in OAO Moscow Exchange in the country's biggest share sale since President Vladimir Putin's incursion into Ukraine triggered a stock market rout in March.

The central bank sold 267 million shares, according to a statement on the regulator's website today. That may bring in about 16 billion rubles ($468 million), based on the price of 60 rubles a share. The amount of stock on offer was equivalent to about 11.75 percent of the total equity outstanding, according to data compiled by Bloomberg.

Shares of Moscow Exchange rallied 32 percent through yesterday from a 10-month low on March 13 as investors bet on a de-escalation of the Ukraine crisis. Demand for Russian assets dried up after Putin annexed Crimea in March, pushing the benchmark Micex Index (INDEXCF) into a bear market. A July 2013 law prevents the central bank from owning equity in the bourse as it assumed the role of financial markets regulator.

"The market has returned to pre-Crimea levels and the central bank saw a window for a share sale," Vadim Bit-Avragim, who helps oversee about $4.1 billion at Kapital Asset Management LLC in Moscow, said by phone. "The exchange's stock had risen to a record high last month, the market presented an opportunity for selling, why not place the shares?"

Foreign Investors

The Russian Direct Investment Fund, or RDIF, bought shares in the transaction with a group of international institutional investors from China, Singapore, United Arab Emirates, Qatar, the U.S., U.K. and Germany, the Kremlin-backed fund said in an e-mailed statement today, without disclosing the amount.

RDIF, together with foreign partners, bought more than half the stake the central bank sold, said a person with knowledge of the deal who asked not to be identified because it's not public information. The proportion of the investment is 1:5, with RDIF getting one part to its partners' five, the person said.

Bids of 96 investors were satisfied, the central bank said today. More than 10 percent was sold to U.S. investors and 15 percent to Asian investors, central bank First Deputy Chairman Sergei Shvetsov said today in St. Petersburg.

"The deal closed quickly because demand was high," Evgeny Fetisov, Moscow Exchange's chief financial officer, said by phone. "We were pleasantly surprised by the high demand."

Record High

The bourse's stock, which began trading in February 2013 after an initial public offering, rose to a record 69.80 rubles on June 23 as it benefited from a surge in market volatility and trading volumes.

Moscow Exchange was the biggest decliner on the Micex gauge yesterday, falling 3.6 percent to 65.05 rubles on concern the offering would dilute existing shareholders. The stock rose 1 percent to 65.70 rubles as of 3 p.m. in Moscow today.

The Russian central bank didn't see any signs of suspicious trading in the shares before the offering announcement, which came after the close, Shvetsov said.

"Our feeling is, there was no insider trading," said Shvetsov, who heads the central bank's financial markets regulation arm.

The central bank said in a statement yesterday it is divesting the shares in a series of transactions to fulfill a legislative requirement from last year, when it was mandated to complete its exit from the bourse before Jan. 1, 2016. The sale is the biggest by a Russian company since retailer Lenta Ltd. (LNTA)"s IPO in London raised $952 million in February, data compiled by Bloomberg show.

Worst Over

Goldman Sachs Group Inc., JPMorgan Chase & Co., VTB Capital, Sberbank CIB, OAO Gazprombank and Citigroup Inc. helped manage the offering, according to terms obtained by Bloomberg.

Russia's central bank is the largest shareholder in the bourse, followed by OAO Sberbank's about 10 percent stake, according to Moscow Exchange's shareholder data.

"Investors are looking past the Ukraine crisis and assuming the worst is over," Slava Breusov, an analyst at Alliance Bernstein LP in New York, said by phone yesterday. "There is an appetite in the market for offerings globally and the central bank is using the opportunity to sell."