beyondbrics

Why did Domodedovo pull its initial public offering late last night? This is the question that’s been puzzling emerging market investors as they struggle to make sense of why Moscow’s biggest airport by traffic decided to postpone the listing before it had even begun marketing itself to potential shareholders.

The company said in a statement, released in the middle of a US and UK three-day holiday weekend, that it had decided to postpone the IPO because it believed that “current market conditions” would not allow the company to be “priced at a fair value”. However, as one investor tells beyondbrics: “The company really didn’t give us time to think about [the group or its valuation].”

The decision to pull the listing comes amid an admitted rough patch for equity issuers, especially from Russia. Of the 10 Russian groups that have attempted to do initial public offerings abroad since the start of the year, only five have succeeded.

People close to the banks on the Domodedovo deal – Goldman Sachs, JP Morgan, Morgan Stanley and Citigroup – denied that any other forces had prompted the decision to delay the listing besides market conditions, and a disagreement between the banks and the management over what price that airport could fetch.

Domodedovo had been facing an onslaught of media scrutinty in Russia before the IPO on reports that the company’s management could be forced to sell out to a state-connected private investor.

Meanwhile, the prosecutor general recently released a  report that deemed Domodedovo’s offshore ownership structure “unacceptable” and asked Russia’s transport ministry to put together a new bill that would essentially forbid Domodedovo’s current owners from managing the business.

Dmitry Kamenshhik, who owns 100 per cent of Domodedov, was named the 86th-richest man in Russia by Russian Forbes with an estimated net worth of $1.1bn

Analysts and investors say they are sceptical that the increased pressure against the airport at home had nothing to do with the decision to postpone the listing.

“Investors are not ready to pay fair value for a company which could face some risks with the state,” says one analyst, who did not wish to give her name because of the sensitivity of the matter.

“I don’t exclude the possibility that Domodedovo will change its shareholder structure very soon.”

She added that it was strange that Domodedovo had not had a single Russian bank on the deal. All nine Russian groups that have tried to float in London this year have had at least one domestic bank as a bookrunner, with VTB Capital, the state-owned brokerage, on at least half of the deals.

Yandex, the Russian search engine group which raised over $1.4bn in a New York IPO last week, did not have a domestic broker on its deal.

For now investors say they have been left guessing about what happened to Domodedovo and what will happen to the company in the future.

“Something happened obviously,” says a second emerging markets investor. “If you knew nothing about the background [of the prosecutor general's inquiry], the company looked fine.”

Related reading:
Domodedovo: Storm clouds at bay, beyondbrics
Russian Helicopters: hard landing, beyondbrics
Euroset: another IPO bites the dust, beyondbrics
Russian IPOs: a cheat sheet for investors, beyondbrics
Yandex: a risky prospect?, beyondbrics
Yandex plays down Russian roots for IPO, FT