EBRD and Russian fund take stake in merged Russian bourse

Financial Times, 30.01.2012
The European Bank for Reconstruction and Development and the Russian Direct Investment Fund have taken stakes in Moscow’s main exchange, in a bid to make Moscow more attractive for both local companies and foreign investors.

The EBRD will acquire 6.3 per cent of Micex-RTS, while RDIF, a $10bn fund launched by the Kremlin last year, will take 1.3 per cent. Kirill Dmitriev, head of RDIF, said a few leading private equity funds were in talks to join as co-investors.

Both Mr Dmitriev and a representative for the EBRD emphasised that the investments were being made with an eye on returns – and not as a favour to the Kremlin.

The daily turnover of Russian equities has risen from about $100m in 2000 to about $6bn today, with a third of the turnover on Micex-RTS.

Roland Nash, chief strategist at Verno Capital, the Russian investment fund, estimated that Russia could grow from a $1,000bn equity market to a $2,000bn equity market in just a few years time.

To generate that type of growth, Russia will need to woo both foreign investors as well its own companies, who are floating in London, Hong Kong and New York, and in many cases foregoing a domestic listing altogether.

The markets regulator has tried to attract foreign investors with plans to create a national central securities depositary, which will open the Russian market up to big-name US pension and mutual funds and is due to be completed early this year.

The EBRD and RDIF’s investment follows closely on the formal merger of indices Micex and RTS in December. The groups bought their stake at a discount to the $340m it would have been valued at at the time of the merger, and will likely retain their holdings through Micex-RTS’s initial public offering, which is scheduled for 2013.

Mr Dmitriev said the two funds would steer Micex-RTS in rolling out new services, such as exchange-traded funds and products aimed at mutual and pension funds.

The deal will mark the first time that the EBRD has invested in a stock exchange, after an earlier plan to take a 10 per cent stake in RTS was unexpectedly thwarted by Russia’s market regulator.

It comes as funds across the world are taking a fresh look at exchanges – especially in emerging markets. Goldman Sachs, Morgan Stanley and Citigroup have all invested in India’s NSE index, while General Atlantic, the private equity firm, took a stake in Brazil’s BM&F in 2007 prior to its merger with Bovespa.

“If you look at valuations of emerging markets they are growing quite significantly,” Mr Dmitriev said. The capitalisation of the Russian stock market represents just 65 per cent of Russia’s gross domestic product, while the capitalisation of New York’s NYSE and Nasdaq is 124 per cent of US GDP.