Shares in mobile operator MegaFon fall on debut

Shares in MegaFon fell two per cent on their market debut yesterday, following a bumpy ride for the IPO and showing limited demand among investors for another Russian mobile issue.

Russia’s second-biggest mobile phone operator had priced its London and Moscow offer at the bottom of a previously indicated range, raising $1.7 billion and pitting itself against New York-listed Russian market players MTS and Vimpelcom.

Yet the muted response to MegaFon, controlled by Russia’s richest man Alisher Usmanov, showed investor caution about backing a Russian issue – some of which have a history of performing poorly – and a reluctance to back MegaFon over leader MTS which has a bigger free float and similar dividend yield.

“MegaFon is five years late with its IPO as the phase of active growth of the Russian telecoms market is already over,” said Yevgeny Golosnoy, analyst at brokerage Metropol. “Global investors are cautious because they need either a very low price or growth potential.”

MegaFon’s IPO at $20 per GDR – the bottom of an indicated range between $20 and $25 – values the company at $11.1 billion and is the biggest listing by a Russian company since aluminium producer Rusal floated in Hong Kong in 2010.

Leaving the London Stock Exchange after a ceremony to mark the start of trading, MegaFon chief executive Ivan Tavrin high-fived a colleague and appeared elated. He declined comment on the offering.

The deal was oversubscribed on Monday evening, sources said, but it had been a struggle to fill the book, one market source said.

“People got full allocations and hedge funds made up a significant portion of the book – that’s a bad sign because they flip,” or quickly trade out of a stock, said one equity salesman in Moscow. A separate source said demand had increased towards the end of the roadshow when US investors returned from the Thanksgiving holiday.

MegaFon is focused on Russia and is outpacing its peers in a maturing, though still lucrative, mobile market. Still, analysts have said the IPO would only be interesting if priced at a discount to MTS.

MegaFon’s offering had a setback when questions about corporate governance prompted investment bank Goldman Sachs to drop out of the deal, a source previously said. The UK Listing Authority signed off on the prospectus only after Usmanov pledged to keep overall control under a deal to restructure his and his partners’ assets.