Russian retailer Detsky Mir raises $355m in ‘litmus test’ IPO

FT, 08.02.2017

Russia’s largest children’s retailer, Detsky Mir, has raised $355m on the Moscow stock exchange, valuing the company at roughly $1bn, in an initial public offering seen as a potential turning point for the Russian market.

The listing on Wednesday marks the country’s first major share sale since western sanctions were imposed in response the Ukraine conflict in 2014 and an ensuing recession spurred by the crash in global oil prices. It has been closely watched by investors as a sign of improved sentiment in the Russian market.

 “This is really a breakthrough IPO, the first IPO after [the] crisis,” said Kirill Dmitriev, head of the Russia Direct Investment Fund, which made a 90 per cent dollar return after buying a stake in Detsky Mir a year ago. “It shows that Russian markets are opening up.”

As many as 90 per cent of the shares had been bought by foreign investors, said Mr Dmitriev. “A lot of people were sceptical that foreign investors would come to the Moscow exchange. This figure of 90 per cent is a very good answer to that question,” he added.

The company placed Rbs21.1bn ($355m) of stock, about 33.6 per cent of total share capital, including an overallotment option, at Rbs85 a share, valuing the company at Rbs62.8bn. The price was at the bottom end of its Rbs85-Rbs105 range and the stock will begin trading on Friday.

 “This was a real litmus test for the Russian market,” said Jacob Grapengiesser, a partner at East Capital. “There should be several more IPOs and secondary offerings in the next few months.”

The IPO is one of the first major offerings to be held on the Moscow exchange after an extensive plan to upgrade it.

Oligarch Vladimir Yevtushenkov, whose company Sistema owns Detsky Mir, began exploring an IPO in London in 2013 but shelved the plan after sanctions were put in place against Russia.

Sistema will retain a stake of 50 per cent plus one share. The Russia-China Investment Fund, part of the $10bn sovereign Russia Direct Investment Fund, also retains a stake of about 13 per cent after selling a 10 per cent share in the retailer.

Detsky Mir — Russian for “children’s world” — has expanded rapidly in recent years as competitors went bankrupt in the recession and the children of the late 1980s Soviet baby boom began having children of their own.

In the past three years the company has opened more than 270 branches, increased its revenues by an average of 30 per cent year on year and lifted its annual earnings before depreciation, tax and amortisation by an average of 40 per cent.

The IPO marks a personal triumph for Mr Yevtushenkov, who has bounced back since he was placed under house arrest and his oil company Bashneft was nationalised in 2014. He has said he is exploring an IPO of Sistema’s agricultural company Steppe later this year.

“I’ve already stopped thinking about everything to do with Detsky Mir,” he said.