Last updated: November 28, 2012 11:55 am

Megafon shares fall after $1.7bn IPO

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Megafon shares made a disappointing debut in London and Moscow after pricing at the bottom end of the range on Wednesday in another setback for the prospects of a revival in the London initial public offering market.

The Russian mobile operator raised $1.7bn in the largest London offering of the year, giving Megafon a market capitalisation of $11.1bn at the start of trading. But the shares lost as much as 3 per cent during the day, closing at $19.60, with the banks having to intervene to stabilise the shares.

The deal had been plagued by weeks of negative publicity after Goldman Sachs pulled out as a lead bank on the IPO shortly before the company was due to start its roadshow, and bankers had to work right up to the wire just to fill the order book before trading began.

Investors looking at the deal told the Financial Times that they had been spooked by news of Goldman pulling out. “When you get a bank pulling out of an IPO like Goldman, that tells the story,” said one portfolio manager at a UK institution, which did not invest in the IPO as a result.

Another senior European portfolio manager said it tapped into wider concerns about Russia. “I would not touch a Russian company with a bargepole. You do not know what you are buying. In terms of governance and proper standards, these companies do not work for me.”

One banker said that other major institutions were waiting in the sidelines to buy the stock in the aftermarket depending on what happens, adding that the owners at the moment were not fast-money investors but that most shares were held by around two dozen long-only institutions.

Another person close to Megafon played down any disappointment with the opening day performance, pointing to a low discount to peers such as MTS even at the lowest end of the range as well as the dividend that was reflected in the group at close to 10 per cent.

“It did not have that pop in the aftermarket of other recent deals in Europe, but given all the negative publicity over the last couple of weeks it was major success to get it away at that level,” said one person close to the deal.

The order book was filled on Monday partly thanks to the help of one large fund that placed orders for more than $170m worth of Megafon shares, say people close to the deal.

The completion of the deal marks the end of a torrid few months on the back of the exit by Goldman. Following the move the UK Listing Authority – an arm of the Financial Services Authority– took three weeks longer than expected to review the deal, forcing the listing to be postponed.

People close the bank said Goldman had been concerned about an upcoming restructuring of the assets of Alisher Usmanov, the Uzbek-born oligarch and Megafon’s owner, which would put his Megafon stake within a bigger umbrella holding and under the co-ownership of two partners.

Mr Usmanov, one of Russia’s richest men and a shareholder in Arsenal Football Club, has since pledged to keep overall control in the new group through a shareholder agreement.

Additional reporting by Daniel Thomas, Alexandra Stevenson and Michael Hunter

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