Russian mobile operator MegaFon limps over line at London listing | Nils Pratley

UK investors still have good reasons to be nervous about being minority shareholders in an oligarch-dominated venture

It was the largest capital raising in London by a telecoms company since 2001 and the first big Russian arrival since 2007. But MegaFon hardly sprinted over the line.

The shares, which the company hoped might fetch $25 each, were priced at a bottom-of-the-range $20 and slipped below even that level when trading started.

That's the difference between a valuation of $14bn and one of $11.1bn – a lot, even when only 15% of the company was actually being sold.

What was the problem? Simple: the company and its banking advisers were too greedy on price.

MegaFon is not alone in the world of quoted Russian telecoms stocks – MTS and VimpelCom already have listings in New York.

There are decent arguments that MegaFon's medium-term commercial prospects are the brightest of the lot since it is a pure-play Russian operator and appears well-invested for the 4G era.

On the other hand, MTS is the market leader. MegaFon, the number two, was pushing its luck in thinking it should be valued at only a slight discount to MTS on an enterprise value-to-cash earnings basis.

That is doubly so when you remember that the controlling shareholder is controversial Uzbek oligarch Alisher Usmanov. The complicated structure through which Usmanov's company owns 55.8% of MegaFon was tidied up ahead of flotation and the various shareholder and voting agreements were reasonably well explained. Lord Myners, corporate governance stalwart, was hauled on board, albeit late in the day, as a second independent non-executive director.

But London investors still have good reasons to be nervous about being minority shareholders in an oligarch-dominated venture out of eastern Europe. There have been too many disasters in the past.

Let Usmanov and MegaFon prove they are different, seems to have been the general mood.

Quite right too: if the shares aren't offered at an obviously bargain price, there are plenty of other emerging market stocks to buy.


Nils Pratley

The GuardianTramp

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