Kcell and Megafon shrug aside Goldman Sachs effect

David Hellier
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he end, the decision by Goldman Sachs to extricate itself from a leading position on the syndicate of banks advising Russia’s leading mobile telecoms group Megafon on its £7bn London and Moscow flotation didn’t turn out to be fatal. And although Goldman didn’t advise on the London flotation of Kazakhstan-based telecoms group Kcell, fears that its exit could dampen investors’ appetite for all Russian firms also proved unfounded.

Goldman’s shock move, which came ahead of the Megafon’s October global roadshow, certainly frayed a few nerves and caused the UK’s listing authority to take a closer look than normal at the company, leading to a delay in the flotation procedure.

But Megafon’s listing went ahead on Wednesday in what was a triumph for those advisers, led by Morgan Stanley, who stayed with the deal, as well as the London market.

So flimsy is sentiment in the IPO markets, though, that the soft start to trading in Megafon’s shares on Wednesday, even though they were priced at the bottom of the range, caused some to suspect that the flotation of Kcell, the Kazakhstan-based telecoms group, might not go ahead as planned.

However, Kcell, advised by UBS and Credit Suisse, announced its pricing yesterday, with those working on the deal stressing the group’s difference from Megafon; fewer corporate governance issues and much higher dividends to name but two virtues.

Kcell is the leading mobile telephone operator in Kazakhstan with 12.7m subscribers or 47 per cent of the total market in the central Asian country.

Most analysts have been fairly sanguine about the effect of Goldman Sachs’ decision to absent itself from the Megafon deal. “If Goldman had remained in the syndicate there would have been more investment from some different institutions,” said Luis Saenz, head of equity trading at BCS Financial Group.

“But equally many investors were only too happy to pick up shares at a lower entry point.”

The devastating thing for Megafon was that Goldman Sachs’ decision came just days ahead of the group’s roadshow, becoming the talking point of early presentations.

Investment banks these days put their reputations at risk at their peril, so it will be fascinating to see how this one turns out.

Will Morgan Stanley prove to have made the right move in standing by its client?

Or will Goldman look prescient if and when a problem in governance surfaces? Only time will tell.

STJ Advisors, a boutique banking advisory group that pitches itself as being a balance to the banking syndicates on IPOs, isn’t the most popular name amongst investment bankers at the larger banks.

The complaint is that STJ second guesses the work done by the bank syndicates and complicates things with its time-consuming investor mapping processes.

But almost two years after a group of banks discussed how to effectively blackball STJ, the evidence is that the group is thriving. Recently it was hired by the Spanish bank, Banco Popular, to advise on its rights issue and helped produce a good result. Here to stay, I think.