Ценообразование IPO и SPO на пути от старого рынка к новому

Pricing of Russian IPOs

and SEOs

Prior to February 2022, around 2/3 of the free float of Russian companies was owned by foreigners (the ‘old market’). In September 2022, the Russian market resumed its operation with much smaller deal sizes focusing on domestic (primarily retail) investors (the ‘new market’).

Initial Public Offerings

PRICING MECHANISM

The price discovery process of the old market was fairly standard, comprising on average two weeks of pre-marketing followed by two weeks of bookbuilding (one week and one week, respectively, post 2020 pandemics). UKand Moscow-listed deals were pre-marketed on the basis of research reports, and US-listed transactions on the back of handout (or netroadshow) presentations. These materials expressed the views of syndicate analysts on the fair value of companies being placed. Following investor meetings/calls, analysts and sales collected valuation feedback that served as the basis for setting a price range. Finally, the stories were marketed by the company’s management, while syndicate sales collected investor orders via bookbuilding.

The analysis herein looked at the specifics of pre-marketing, bookbuilding and allocations based on the following information:

•Valuation methodology: 35 IPOs priced in 2006–2008, and 26 priced in 2010–2020.

•Price ranges, pricing and allocations: 19 and 17 transactions, respectively.

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The price discovery process of the new market does not materially differ from that of the old market except that materials are produced in Russian and are targeting a much narrower universe of Russian institutional investors. Pre-marketing typically takes less than one week followed by a week of bookbuilding.

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In 2006–2020, the upper bound of analyst valuations was typically DCFbased, with the lower bound featuring multiples-based valuation. IPOs tend to price towards the lower bound, casting doubt on whether DCF should define the upper bound rather than playing an ancillary role verifying multiplesbased valuations. The 2022–2023 transactions, however, carried on with the old approach.

Investors pick the most relevant set of comparables and request a discount to these multiples (the IPO discount). Businesses with higher growth and margins may eliminate the IPO discount. In the old market, when local peers were not available, investors picked the closest comparables elsewhere (e.g., Tinkoff and Alior / Capitec / Compartamos / International Personal Finance). In the new market, investors pick indirect comparables among local peers (e.g., Henderson Fashion Group and Fix Price).

PRICE RANGE

Figure 1 shows examples of waterfall charts which in the old market served as the basis for establishing the price ranges.

In 2006–2008, the upper bound of the range represents just 3% of indicative demand at the time of pre-marketing; the lower bound 64%; and eventual pricing comes at 18%.

In 2010–2020, the tactics of setting up the price range didn’t change materially; however, the percentage of indicative demand at the IPO price tripled (57%).

In the new market, due to a limited number of observations it seems impracticable to present valuation sensitivity of Russian institutional investors in the form of waterfall charts. Valuation sensitivity is currently reflected in analysis at various prices tables.

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Fig. 1

Pre-marketing waterfalls

Tinkoff Credit Systems (2013)

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Detsky Mir 2017

Price 1 Price 2 Price 3 Price 4 Price 5 Price 6 Price 7 Price 8 Price 9

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PRICING

Figure 2 shows examples of waterfall charts which in the old market served as the basis for establishing the price.

In 2006–2020, Russian IPOs were characterised by fairly low median oversubscription levels, especially in 2010–2020 (1.8× versus 2.5× in 2006–2008).

In line with other markets, correlation between oversubscription and the percentage of limit orders was inverse, and only a small portion of limit orders were revised in the course of bookbuilding.

In the context of ‘hot deals’, where the initial return may be negative despite multiple times oversubscription, pre-marketing feedback serves as a more reliable tool of determining genuine price sensitivity and not getting carried away by deal excitement leading to aftermarket disappointment.

The new market seems to be posed to higher median level of oversubscription (3.1×) paving way to better median initial returns.

ALLOCATIONS

In the old market, out of four factors — bidding in size, frequent participation in deals, showing price sensitivity and bidding early — only the first appears to be consistently relevant for allocations.

The focus of allocations of the new market shifted to retail, with first deals allocated pro rata while subsequent transactions establishing inverse correlation between percentage of allocation of order size.

PRICE DYNAMICS

Unlike many other markets where initial returns are in the double digits, the average first day performance of 103 Russian IPOs in 1996–2021 was just 4.3% (median 1.8%). In 2022–2023, average / median first day performance was 9.5 / 2.0%.

As regards ‘hot issues’, the timing of old market IPOs was driven primarily by the availability of accounts and the 135-day rule defining when these accounts go stale rather than initial returns of prior transactions; the new market seems to be more exposed to behavioral finance, including the concept of ‘hot issues’.

Volumes peak on the first day of trading and decline significantly thereafter, underpinning the importance of conducting SEOs soon after an IPO.

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Seasoned Equity Offerings

PRICING MECHANISM

SEOs are priced off market close before the launch of a transaction. Typically shares are placed at a discount. The median underpricing in 2019–2021 was 5.8%.

Selected bookbuilding waterfall charts are presented in figure 3. Typically, SEO pricing comes just before a significant drop of demand in the book, although in some cases the demand barely covers the book.

The specifics of bookbuilding and allocations were examined on the basis of books of demand of 17 Russian seasoned equity offerings priced in 2007–2020.

The oversubscription level of Russian SEOs (2.5×) is either comparable to or exceeds that of IPOs, depending on the period under review.

The percentages of limit orders (57%) and revised bids (2%) of seasoned equity offerings are comparable to those of IPOs in 2010–2020.

In the context of SEOs, only one factor — bidding in size — appears consistently relevant for allocations.

Just like with IPOs, with regard to the new market SEOs it is impracticable to present valuation sensitivity of Russian institutional investors in the form of waterfall charts.

Moreover, at least in the context of the first SEOs of the new market the focus shifted from discount to free options granted by the sellers to motivate retail to participate in the transactions.

PRICE DYNAMICS

In line with other markets, in 2019–2021 Russian SEOs saw negative price moves at launch (–2.8%) and between launch and pricing (–2.7%), as well as positive moves at price announcement (+1.8%).

The four SEOs of the new market were also subject to negative dynamics at launch and between launch and pricing whereas only one of the four closed positively at price announcement (on the back of >1× oversubscription).

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Fig. 3.

Bookbuilding waterfalls

Sberbank 2012

Demand level

Supply level

Offering price