Russian fertiliser group Phosagro scraped the floor of its price range for a dual listing in Moscow and London that raised $538m. But judging by the fate of the other Russian companies that have tried to come to international markets this year, the float can be considered a success.

The IPO could be upsized to $594m, depending on the exercise of an over-allotment option, and at present implies a market capitalisation of $5.2bn. Initial analyst estimates had valued the company at between $6bn and $8.8bn.

The deal priced at the very bottom of the company’s latest range of $14-$14.5 per GDR, or $420 per share. The organisers had originally targeted a price range $16-$23.

No new shares were issued, and all the money raised will be pocketed by the company's main shareholders, Andrey Guryev, a Russian senator from Murmansk in the north of the country, and members of his family.

Guryev was clearly willing to do something a number of his compatriots have proved reticent to do - accept a lower valuation for his company.

At least six Russian IPOs have been scrapped so far this year, including the planned $2bn listing of state-owned helicopter manufacturer Russian Helicopters and a planned offering from DME Limited, the holding company for Moscow’s biggest airport by traffic. The principal reason for the failure of the majority of these planned listings was a disagreement between the valuation requested by the company and the price the market was willing to pay.

Meanwhile, five of the six Russian companies to list in London in 2011 have priced at the bottom of, or below, their intended price range.

An institutional investor that met with Phosagro during its recent marketing campaign told FT Tilt that the company had expressed a very strong desire to float, even though it has no need of the money, possibly as a way of legitimising its ownership structure, which was one of the key factors investors paid attention to in the run up to the float.

Future prospects

When the company first announced its intention to do an IPO, it wasn’t clear who actually owned the company. Shortly thereafter, the truth was leaked by a Russian investment bank to a Russian newspaper.

Troika Dialog revealed that Guryev and members of his family own an 81 per cent stake, while Phosagro chairman, Vladimir Litvinenko -- an academic who headed the committee that approved Prime Minister Vladimir Putin’s infamous, and possibly plagiarised, dissertation -- holds a 10 per cent stake. (But a source close to the company’s management told FT Tilt it is unlikely an individual would hold such a sizeable stake, and suggested that Litvinenko is acting as a representative for the government).

Another issue that troubled investors was the presence of the Russian government as a shareholder with veto rights in Phosagro’s main asset. Apatit, the mining and processing subsidiary, produces the bulk of Russia’s apatite concentrate, the main ingredient in phosphate fertilisers, and is at the top end of Phosagro’s value chain and central to its business.

Phosagro has been planning a listing for some time, but had been held back due to concerns over investor perceptions at the obvious state influence in Apatit. And the fertiliser company revealed in its prospectus that a recent attempt at a share swap with the government, whereby Phosagro would attain the 20 per cent stake in Apatit in exchange for its own shares, was rejected.

Apatit - Phosagro

Apatit central mine. Source: Phosagro

But despite these risks, analysts seem agreed that the stock price has strong future growth prospects. Artem Lavrischev of TKB Capital, the investment banking business of Russia’s Transcreditbank, the bank of Russia’s monopoly rail transportation company, said there are plenty of reasons to look positively on the future dynamics of the stock.

The market cap valuation of $5.2bn represents an expected 2011E EV/EBITDA of 5.6, which implies a discount of at least 30 per cent to its foreign peers, he said. In addition, current strong market conditions for fertilisers could also support the shares.

Sibur, Russia's largest petrochemical producer, Sberbank and Societe Generale each took a large chunk of the offered shares. Conditional trading commenced on Wednesday and admission to the official list is expected to take place on or around July 18.

See also:
Phosagro potential IPO risks - FT Tilt
Behind the scenes of Phosagro’s upcoming IPO - FT Tilt
Russia’s Phosagro plans IPO – ownership questions unanswered - FT Tilt
Phosagro - and the owner is…. - FT Tilt