DME Limited, the holding company for Moscow’s biggest airport by traffic, has pulled a planned initial public offering before even setting out on the road to market itself.

The owners of Domodedovo Airport said the listing was postponed because negative market conditions would prohibit a fair valuation for the company, but growing political storm clouds also appear to have played a role.

The airport owners had intended to sell about 20 per cent of DME’s existing shares in a London IPO that could have raised between $700m and $1bn, valuing the company at $3.5bn to $7.5bn. But instead of seeing its name listed on the London bourse, the company instead will have an engraving on a tombstone in Russia’s growing IPO graveyard.

At least five other Russian IPOs have been scrapped this year already, including a pulled $2bn listing from state-owned helicopter manufacturer Russian Helicopters, a scrapped $1.3bn floatation from mobile phone retailer Euroset and the cancelled £441m ($709m) deal from gold miner Nord Gold. In addition, with the exception of Russian search engine Yandex, those companies that have managed to list are now, in general, trading at levels below their listing prices.

Against this backdrop, DME Ltd made a decision to pull its listing. Investors, while interested in the overall story of the biggest airport in Russia, were seeking a bigger discount on the IPO than the company’s owners were willing to provide, especially since DME Ltd is not in need of the IPO funds immediately, sources close to the deal told FT Tilt.

A mismatch between the valuation requested by the company and the price the market is willing to pay has been a major reason for the failure of the numerous other IPOs this year, making one question DME’s decision to announce its listing plans in the first place.

However, people with knowledge of the deal said the company first engaged publicly with investors when the market was still excited by the Glencore IPO and had hoped to list in its slipstream. But increased volatility in the past few weeks and a steadying in the oil price have increased investor caution, they said.

Postponement of the IPO at this stage is a “very rational decision”, according to one source, who noted that DME will save itself the blushes other Russian firms have had to endure this year having pulled their deals after having met with investors, announced a price range and published a prospectus.

The cancellation also saves investors from the potential political risks surrounding the company.

Just days before the company announced its IPO plans, the prosecutor general’s office lambasted the ownership structure of the airport in a report requested by President Dmitry Medvedev, following the suicide bombing at the airport in January.

The report found that Domodedovo was owned by offshore holding groups, which, while a common practise for Russian companies, was deemed “unacceptable”. It did not help DME’s case that the market had thought Dmitry Kamenshchik, the sole owner of DME, shared the ownership of DME with Valery Kogan.

The prosecutor advised Russia’s transport ministry to create a new bill to ban offshore companies from managing strategically important transport assets.

A potential solution for appeasing the Kremlin had been for former energy minister Igor Yusufov to buy a blocking stake in Domodedovo for about $1bn. It was envisaged that he could calm the political storm and strengthen damaged relations between the airport and government officials.

Yusufov was reportedly in talks with Valery Kogan, chairman of Domodedovo's supervisory board, about buying shares. However, DME denied that any talks had taken place.

A good story - a bad ending

DME served approximately 22.3m passengers in 2010 via 77 airlines, 49 of which were foreign (16 from CIS states). Last year the company generated consolidated revenue of Rbs29.7bn ($1.06bn) and adjusted EBITDA of Rbs12.7bn, compared with revenues of Rbs24.4bn and adjusted EBITDA of Rbs7.9bn in the preceding year.

And the airport compares well with its peers, according to research from Russian bank Otkritie:

With its 2010 EBITDA margin at 43 per cent, Domodedovo is a very profitable and interesting asset. By comparison, the profitability of London Heathrow is 47%, Aeroports de Paris (which manages all Pairs airports) is 34%, and the airport in Frankfurt is 19%. Domodedovo plans to double its passenger traffic by 2020, triple the area of its terminal, and build another runway – expansion that requires capex of $2.5bn.


Source: Domodedovo Airport

See also:
Domodedovo Ditches IPO - The Moscow Times
Yandex IPO – a one-off success story - FT Tilt