Yandex plays down Russian roots for IPO

Walking into the headquarters of Russian search engine Yandex, the first thing you notice are the plants, then the hammock, then the drum set.

The funky atmosphere brings the internet group closer to Silicon Valley, the spiritual home of technology companies, than to Moscow’s grim corporate landscape. “When you walk through the door, you feel like you’re not in Russia any more,” agrees a western banker.

Yandex’s non-Russianness is something the internet group and its advisers are trying to emphasise ahead of its initial public offering on New York’s Nasdaq market early next week, as they seek to distinguish Yandex from the sea of oligarch-owned, natural resource companies that have come before it.

The company, which is due to price the offering late on Monday, will try to raise up to $1.1bn by selling a stake of up to 18 per cent. The price range is $20-$22 a share, valuing the group at $6.1bn-$6.7bn.

The Yandex offering will follow a flurry of New York tech listings this month, including Renren, the Chinese social network. Both will have got in ahead of the much-anticipated market debut of Facebook.

Arkady Volozh and Ilya Segalovich, Yandex’s founders, this year made their debut on Forbes’ list of the 200 richest Russians. They co-founded Yandex in 1997 and will retain most of their collective 25 per cent stake in the company, as will Baring Vostok Capital Partners, a Russia-focused private equity fund that owns a similar-sized stake.

The company has a 65 per cent share of the Russian internet market.

According to Uralsib, the Moscow investment bank, the company’s price range implies a future price to earnings multiple of between 14.8 and 16.3, a discount of up to 20 per cent compared with its international peers.

While, which listed in London last year, has stakes in the country’s largest social networking site and is the country’s largest e-mail provider, Yandex is Russia’s biggest internet company by revenue.

It does not have an established oligarch shareholder.

Alisher Usmanov, the steel magnate, owns 25 per cent of, while Alexander Mamut, a Russian tycoon, owns Sup Media, an internet holding company.

Last year, Yandex revenue was up 43 per cent on the previous year, at $440m.

Over the next four years, internet penetration in Russia is expected to increase from 40 per cent to 70 per cent according to Russia’s Public Opinion Foundation, a Moscow-based polling agency.

The country’s online advertising market will almost triple, making it the fastest-growing online advertising market in the world, analysts say.

Interest in Yandex’s IPO has been intense, with people close to the deal saying the order book was full at the end of its first day, early this month.

However, despite its growth prospects, the company has faced negative publicity during the pre-IPO roadshow after its payment site, Yandex Money, provided Russia’s security service with some users’ personal information after they used the site to donate to an anti-corruption organisation.

People close to Yandex say the company had had no choice but to comply with government regulations, but the issue has highlighted concerns that the Kremlin may yet decide to clamp down on internet use.

But for US tech investors, eager for emerging markets exposure, corporate governance concerns may not weigh that heavily, says Sumeet Jain, a venture capitalist with CMEA Capital in San Francisco.

“The issues around how [an internet group’s] country is governed and the practices of the company are important but not as important as the growth figures and profitability of the company,” he says.

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