Company mulls ADR issue

Russia's only public company in the media sector, RBC, is going to enter foreign financial markets. The company will start issuing depository receipts next year. In the opinion of RBC's management, this move can increase the number of potential investors in the company fourfold.

In April 2002, RBC Information Systems (RBC) conducted an initial public offering (IPO) of shares in Russia. The company derived $13.28 million from the placement of 16 percent of its shares on the RTS and MICEX. RBC's sales volume totaled $48.5 million during 2003. Specifically, the company received 55 percent of its revenue from media business and 33 percent from IT business. A new business television project, RBC TV, brought another 12 percent of the revenue. Presently, the free float of RBC shares reaches 36 percent, and a number of individual shareholders own the rest of the shares.

RBC announced yesterday that the company's Board of Directors had endorsed an ADR issue program, which does not envisage any additional issue of shares. German Kaplun, Chairman of the Board of Directors of the company, told Vedomosti that RBC was issuing ADRs to enhance the liquidity of the company's shares rather than to attract investments. "So far, we have enough funds available to develop the company," Kaplun underscored. He is convinced that an issue of depository receipts will help RBC to increase the number of potential investors about fourfold.

"Many foreign investment funds are willing to buy our shares but they do not do that because RBC's securities are traded only on Russian markets," Kaplun said. He added that the company had not selected a depository bank yet and was now choosing between Bank of New York, J.P. Morgan and Deutsche Bank. In the opinion of RBC General Director Yury Rovensky, the issue of depository receipts can take place in the middle of 2005.

Renaissance Capital analyst Natalya Zagvozdina agrees that this decision by RBC's Board of Directors will boost the liquidity of the company's securities and make the issuer's policies more transparent. Zagvozdina noted that foreign investors had been showing demand for shares in the Russian media holding company. "They are interested in the market that RBC is operating in," she said.

There will be enough buyers for RBC's depository receipts, while the company's shares have great potential for growth, Aton Executive Director Dmitriy Starenko points out. He noted that many foreign investors had already acquired shares in this media holding company.

"Furthermore, many foreign banks are willing to provide loans for Russian companies on the security of ADRs," he said. "Following an issue of depository receipts, RBC will also be able to develop loan programs." Starenko remarked that the market trend for the media holding company's shares had been far better than that for the Russian stock market in general. RBC's shares have grown 25.5 percent since the beginning of the year, whereas the RTS index added just six percent.

Michael Boboshko, chief of the analytical department of Sovlink Securities, believes that the demand for shares in companies outside the energy sector is always high on the Russian market. "The market always needs new histories," he said. However, Boboshko noted that RBC was still a very small company. RBC's sales volume was below $50 million in 2003, and the holding company's capitalization barely exceeded $300 million. "Major investors do not invest in such companies," he said. "Therefore, this ADR issue may prove inefficient as it will only slightly enhance the liquidity and attractiveness of RBC's shares."

At the same time, top management is positive about the success of the ADR issue. "Obviously, the market situation is not the best now, as investors are concerned with the situation about YUKOS," Kaplun said. Nonetheless, in his opinion, investors will continue buying Russian issuers' shares in any event. Judging from the results of the issue of receipts in 2005, the Board of Directors will consider the possibility of listing the company's shares on European exchanges.