The Russia Journal, November 30 - December 6, 2001

RosBusinessConsulting (RBC) , the Russian media and IT company, is hoping to blaze a trail onto the stock markets, but market watchers say it may be setting the trend a bit too early.

Russian brokerages and investment bankers were skeptical about the chances of the company, which is planning to float 10-15 percent of its shares in the spring with listings on both the Russian Trading System (RTS) and the Moscow Interbank Currency Exchange. If successful, it will be the first Russian media and IT player on the market.

Alexander Burie, vice president of the investment firm Gamma, told The Russia Journal that "given the low levels of liquidity in the Russian market, small interest in IT companies and the small size of RBC, it cannot be expected to attract too much interest from investors."

Another analyst, Nadezhda Golubeyeva of Aton brokerage in Moscow, also expressed skepticism. "The company is simply too small for international markets," she said. "It's even fairly small for the Russian market. I don't exactly understand what they're aiming for. It's going to be very difficult for them to have a successful IPO."

Yury Rovensky, the CEO of RBC , stuck to his guns, however, and said the IPO made financial sense. "We are trying to set an example," he said. "We believe that this is the right time. The Russian market is growing. And with the decline in oil and metals shares, investors are looking to diversify." But the question RBC will face, analysts say, is whether investors will be ready to seek refuge in a relatively small company representing a market segment few know anything about.

Analysts estimate the company's worth at between $30 million and $40 million, based on its 2000 sales figures of $8 million, according to company executives. But executives are predicting 2001 sales of $16 million and suggested that capitalization would increase accordingly.

No matter what valuation the market finally settles at, RBC runs no risk of being the smallest company on the Russian markets. That honor belongs to the Electronics and Mechanics Factory, with a market capitalization of $90. Yet all but four of the companies listed in the first and second sections of the RTS - Russia's real blue chip stocks in the oil, telecom and metals sectors - have market capitalizations of at least $70 million, a figure RBC may struggle to reach. That, though, doesn't faze Rovensky.

"The revenues of RBC are not as impressive as those of the oil and gas companies, but in the Russian IT and media industry, RBC is one of the biggest players," he said in a telephone interview from Lugano, Switzerland, where he was pitching the company to potential investors in a road show. "We're not expecting to attract a huge amount of money right away. Once other companies follow us onto the market, liquidity and interest will increase. It's a step-by-step process."

The first stop on RBC's road show was Geneva. Niels Osborn, publisher of Euromoney magazine, told reporters that "there were some 70 investment bankers present in the room and that is very high by Geneva standards. I think the reaction was very positive, and the presentation was very professional. It was very impressive."

Vikton Kalin, vice president of ING Bank also praised the "professional quality of presentation" and said that "given that the Russian index has been doing very well, there is money poised to go into the [Russian] market. And it is good to have a company that is not from traditional natural resources or energy sector. I think the growth of this company and quality of management gives it good value in future."

Another investment banker, Michael Hammond, managing director with ABN-AMRO Rothschild said that "media and IT sectors in Russia have a huge potential, and RBC is ideally, placed to benefit from that."

Golubeyeva of Aton, however|| was not impressed. "Although RBC , alongside its auditor KPMG and its financial adviser Ernst & Young, is now opening up its books to scrutiny ahead of its IPO, analysts have very little information on the sector's overall finances. As a result, potential investors and the analysts who advise them have no way of knowing how profitable or efficient these companies are."

RBC, though, is profitable, according to Rovensky. KPMG's audit of the company's 2000 performance showed a 30 percent profit margin, or $2.4 million in profit.

And that will be important for investors anxious not to fall into the dot.com trap that pervaded Western financial markets in recent years, said Tom Adshead, technology analyst at Troika-Dialog.

"People have a lot of experience with this now," he said. "They know what to look for." Adshead said that he saw real value in the good corporate governance and profitability of the company. "I don't think one should dismiss this IPO out of hand," Adshead said. "They are a very good company. I have a favorable impression of the way they work. But RBC is too small for institutional investors."

"Overall, this is a very good time for an IPO in Russia," Golubeyeva said. "The markets are up and investors are looking for alternatives to oil and gas. Mostly, they're turning to utilities, energy companies and telecoms. And next year that tendency will grow even further."

And that could bode well for RBC . Also in good news for the company, a planned emission of convertible bonds - the terms for which have yet to be released - was already oversubscribed after just two days of the company's road show, Rovensky said. RBC will likely release full details of the debt issue sometime this week.

By Yana Baigulova