Financial Russia, April 25, 2002

Russia has seen the first Initial Public Offering (IPO) of a domestic company on the leading domestic exchanges. On April 18, the parent company of the RBC Holding - RBC Information Systems - attracted more than $13m during the IPO with the help of its underwriter - Aton Capital Group. According to estimates of Aton experts, RBC was five times oversubscribed. Orders for RBC shares came from domestic companies, foreign institutional and corporate investors, investment funds and individuals. This allows the drawing of at least two conclusions. First, it seems that the market trusts the Russian high-tech sector and is ready to invest in its development. Second, Russian companies are able to attract indefinitely long and rather large investments on the domestic market.

So, what were the outlooks that aroused such optimism among RBC's investors? Aton's analysts are sure that information technologies (IT) are the most promising kind of RBC's activities. The holding's revenues are rising at the highest pace in this field: according to Aton's estimations, these revenues rocketed more than four-fold over two years (including the forecast for 2002). In addition, Aton analysts believe that a noticeable increase in Internet users in Russia will lead to a faster growth of the Internet advertising market as compared to the advertising market in general - it is expected to surge more than 120 percent annually over the next two years. This market sector provides the highest volume of revenues in RBC.

Only a few experts agree that it was outlooks for the development of new technologies that urged investors to buy RBC shares. Troika Dialog analyst Tom Adshead, who named a number of small foreign companies among the buyers of RBC shares, explained they were investing in a fast growing and successful company. These investors counted on a rise in the company's revenues: in the first place, from projects in the field of information technologies and offshore programming, he was quoted as saying. Other experts believe the key factor was that this IPO was unprecedented. "High-tech stocks were never traded on the Russian market. It is just that investors are tired of a limited circle of energy, oil and telecom securities," Natalya Milchakova of Finance-Analitika said.

Alexander Lobanov, director of the Prospekt client department, is of a similar opinion, "All deals on stocks in the Russian high tech sector were closed until now." Meanwhile, Milchakova thinks it is too early to talk about the trust of investors in the Russian high tech market until the shares start trading on the secondary market. The expert believes that investors who take part in the IPO are acquainted with the issuers, having conducted negotiations on share prices. "It is the underwriter, not investors, who is purchasing shares at the IPO. The whole issue was most likely purchased by Aton, its "sub-contractors" and probably by clients brought by the underwriter." However, Alexander Lobanov does not agree that all funds attracted at the auction came from the friend and family circle. "I do not believe that some pool of investors channeled ruble funds worth $60m to the auction," he said

One way or another, the IPO turned out to be more than successful, and the RBC Holding attracted large investments. What is the fate of its shares and how justified was the boom around this IPO? Analysts unanimously characterize the new instrument as exceptionally strategic and portfolio. In the opinion of Natalya Milchakova, such investments are connected with high risks, but they also may have the potential to turn out highly profitable. "We may say that investors were diluting their portfolios with highly risky assets," she was quoted as saying. But there will be no speculative boom around these shares, the expert believes.

Tom Adshead is of the same opinion. He noted that the most serious risk was the small number of shares floated by the company. That is why large investors would not be able to purchase RBC shares. And Alexander Lobanov doubts that, when buying the holding's shares, investors observed the balance between risks and earnings. "You can find much safer and attractive instruments on the market, and for a half of the company's value you can establish RBC No.2," he noted. Naturally, it would be strange to hear only flattering comments about such an exotic event for the Russian market. The IPO of a high-tech company on Russian domestic exchanges is an absolutely new procedure, and the outlooks for purchasing these shares cannot be obvious. However, this is doubtlessly a very successful precedent. The most important thing for the company now is to try not to disappoint "pioneer investors", as the success of the followers may depend on it.

Vladimir Frolov

*** Financial Russia's footnote

The press services of RBC and Aton Capital Group report that 16m shares of RBC were floated on MICEX and the RTS at RUR25.86 (about $0.83) for a total of about $13.3m. Demand for shares was $64m. As a result, orders were met with a proportion of 20.67 percent. A two-week period of registration of the IPO report in the Federal Securities Commission started on April 18. On the expiry of this term, RBC shares will start trading on the secondary market.