23 October 2003 03:15
Fighter Jets Lock On to Stock Market
Ever want to own your own Russian fighter? Pretty soon you'll be able to, at least partly.
Irkut, maker of the feared Sukhoi fighter jet, plans to hit domestic stock markets in a few months with Russia's
third -- and largest -- initial public offering.
The company, the corporate pioneer of the defense industry, said Wednesday that in February or March it will offer a
total of 20 percent of its shares on both the benchmark dollar-denominated RTS and the larger ruble-denominated MICEX.
It also plans to place shares on the London Stock Exchange later in the year.
Company officials have said they expect to raise $100 million from selling 20 percent of the company, which would
value the firm at $500 million.
"This is a unique opportunity for investors," said Konstantin Malofeyev, managing director of MDM Bank,
which is acting as lead manager.
The largest privately managed company in the defense industry, Irkut this year became the first firm in the sector to
release financial results under international standards, which put 2002 earnings before interest, tax, depreciation and
amortization at $100 million on revenues of $528 million.
Investment banks welcomed the news, as it will offer investors an alternative to the energy stocks that dominate the
market.
"This is excellent news for the Russian equity market. One of the major problems in Russian equities is that
clients are largely limited to oil, electricity and phones," said Eric Kraus, chief strategist at Sovlink, which
recently launched an index of second-tier companies.
"Russia's defense sector is one of the world's largest ... [but] until now, there has been no way for
portfolio investors to gain access to this part of the economy," he said.
The two previous IPOs on the Russian stock market, drugstore chain 36.6 and media company RosBusinessConsulting,
raised about $14 million and $10 million, respectively.
But Irkut is much larger. Some 90 percent of its revenues come from selling Su-27/30 jets to China and India, and its
order book now stands at more than $4.6 billion, thanks to a $900 million deal with Malaysia for 18 Su-30MKMs signed
earlier this year.
Senior vice president Sergei Tsivilyov said the company expects sales of military and civil craft to triple to $1.6
billion per year within the next decade.
The company has high hopes for its Be-200 amphibious craft, which it is building for the Emergency Situations
Ministry. It also hopes to sell hundreds of the planes abroad with the promotional help of the European Aeronautic
Defense and Space Co., or EADS. It is also developing a new transport aircraft together with India's Hindustan
Aeronautic Ltd.
Of the 20 percent stake it plans to place, half will come from a new share emission and half will come from current
shareholders, mostly management, which control 75 percent of the company, according to Alexei Pokhilko, the
company's corporate finance director.
He said some of the money raised will go toward either buying or merging with the Yakovlev design bureau.
Pokhilko said Moscow-based Yakovlev would allow the company to diversify its product range. The design bureau makes
the Yak-130 trainer combat jet, has experience in unmanned aerial vehicles and is developing a short- and medium-range
passenger liner.
Company president Alexei Fyodorov said civil aircraft should account for half of Irkut's business by the end of
the decade.
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