04 February 2004 01:54
Shoppers buy Perekriostok IPO chance RUSSIA:
Russian shoppers, eager to improve their quality of life, are a
retailer's dream.
They have at least twice as much to spend in real terms on food, clothes and
electronics as they did back in 1998 when the country defaulted on its debt
and the rouble was devalued.
If oil prices remain high and the political scene relatively stable,
economists predict the spree could last several years. Russian retail sales
grew 23 per cent in nominal dollar terms in 2003 to reach Dollars 146bn,
according to Renaissance Capital, a Moscow-based brokerage
Retail spending has more than doubled from the Dollars 70bn shelled out in
1999, and is set to grow by a minimum of 12 per cent in 2004. This compares
with 3.7 per cent in the UK last year and a 2004 growth forecast of 3.9 per
cent, according to Verdict, the London-based retail research company.
Russia is widely regarded as one of the world's fastest growing consumer
goods markets, alongside India and China and already several western
retailers, including Ikea of Sweden, Metro of Germany and and Turkey's
Ramstor have made substantial investments in new outlets.
This is the growth story Perekriostok, Russia's second-largest retailer
by sales, will try to sell to investors as it prepares itself to float,
possibly in London, in the next 12 to 24 months.
The group has already met a number of institutional investors and is aiming
to be the first Russian retailer to list on a western stock market.
However, it has not decided yet whether it will list in London or New York.
In April, it sold a 7.7 per cent stake to Templeton Strategic Emerging
Markets Fund, the investment company led by Mark Mobius, the growth market
guru, for an estimated Dollars 15m. The deal valued it at about Dollars 200m.
"We saw the transaction as a preliminary step towards a flotation,"
says Alexandr Kosyanenko, the company's chief executive, who owns a 10
per cent holding.
Perekriostok - Russian for crossroads, a moniker shared with French retail
group Carrefour - has been trying to do all the right things to make itself
attractive to Western investors ever since it was founded in 1994.
Unlike many Russian companies that practise Byzantine forms of accounting,
particularly in their early days, Perekriostok erred on the side of caution.
It retained Ernst & Young to audit its accounts from its first year of
trading.
In 1997, it received a Dollars 42m loan from the European Bank for
Reconstruction and Development, which it says was the first credit ever
granted to a Russian company without state guarantees.
It sought advice from PwC and retail veterans such as John Hardman, former
Asda chairman, who sat on its board from 2000 to 2002.
Perekriostok also carries political weight: it is 80 per cent owned by the
Alfa group, one of Russia's largest privately-owned financial-industrial
conglomerates, headed by Mikhail Fridman.
All of its 55 stores are west of the Volga river which makes them easier to
manage from Moscow and cheaper to service from its wholly-owned distribution
network.
It estimates it will make earnings before interest, tax, depreciation and
amortisation of about Dollars 31.5m, or 7 per cent of turnover, on sales of
Dollars 450m in calendar 2003
Turnover is forecast to more than double from Dollars 320m in 2002 to Dollars
650m in 2004 and the group is hoping it will reach Dollars 1bn by 2006.
It plans to use the proceeds from the planned IPO on expanding its portfolio
of stores. It spent Dollars 50m on capital expenditures this year and will
spend another Dollars 90m in 2004.
Such numbers may capture the imagination of London investors.
But they will be weighing the company's promising prospects against the
risks of investing in Russia, which remain high no matter how much progress
the country has made in the past 10 years.
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