Detsky Mir IPO saw 90% allocated to international investors

Deal Reporter, 08.02.2017

The book for children’s retailer Detsky Mir’s initial public offering (IPO) was dominated by international investors, said Kirill Dmitriev, CEO of Russian Direct Investment Fund (RDIF) and co CEO of the Russia China Investment Fund (RCIF). US based investors took more than 25% of the offering, with strong representation from Europe, Asia and particularly the Middle East, he said, adding that 10% went to sovereign wealth funds.

The RCIF, a joint venture between the RDIF and the China Investment Corporation, owned 23.1% of Detsky Mir. It sold down nearly half of its position in the IPO and now holds a 13.1% stake. Diversified investment group AFK Sistema was the other selling shareholder and reduced its stake to 50% plus one share from its previous position of 72.6%.

Dmitriev said the fund is looking to hold on to most of its stake for the next three to five years. Detsky Mir is expected to grow significantly over the next few years, he added. The IPO offering priced at RUB 85 (EUR 1.34), the bottom of its initial indicative price guidance of RUB 85 RUB 105 (EUR 16.5), for a market capitalisation of RUB 62.8bn (EUR 990.78m).

The majority of the book went to long only investors and sovereign wealth funds, among some of the largest in the world, alongside some hedge funds, according to Dmitriev.

It was a long and diversified book, with more than 80 orders, which was not very concentrated by design, he said. This is the first full IPO in the Russian market for the past three years, he said. The RDIF hopes this will open the window for other IPOs and secondary transactions in the region.

When asked whether any of the RDIF’s portfolio companies could also be looking to ride the wave, Dmitriev said that several of the companies are already listed and are looking at the possibility of secondary public offerings (SPO). But some of the private ones are considering listings, he continued.

The success of this deal offers a big opportunity for the RDIF to engage in further pre IPO investments, privatisations, IPO and SPO transactions, he said.

The catalyst for going ahead with the listing of Detsky Mir was its growth trajectory over the past year, with returns up by 30% and EBITDA figure increased by 56% in 2016, Dmitriev noted.

The deal highlights aspects of where Russia is now politically and economically, as it expects 2% GDP growth this year, he said, adding that the great interest from US investors showcases the improved relationship between the two countries. Credit Suisse, Goldman Sachs and Morgan Stanley were the global coordinators, alongside bookrunners Sberbank and UBS.