London jitters thwart Moscow airport float

MOSCOW’S busiest airport has become the latest group to fall victim to shaky investor confidence in London’s initial public offering (IPO) market.

DME Limited, the offshore company that owns Domodedovo airport, announced the withdrawal of its planned $700m-$1bn (£424 - £607m) float in London late on Sunday night, having published its intention to float document just under two weeks ago.

The company blamed the decision on “market conditions” and a desire to price the deal “at fair value”. Some suggested that political risks, underlined by a bombing at the airport in January, meant that buyers were unwilling to meet the desired price.

But the timing also prompted speculation that the Kremlin could be involved following criticism of DME Limited’s offshore ownership structure by the Russian prosecutor general.

Domodedovo’s float withdrawal follows a similar move by Russia’s biggest coal miner, SUEK, which postponed its float last week. City A.M. revealed in March that SUEK was hoping to float $1bn worth of shares in June, but the miner said last week that “market conditions” were not “optimal”.

Sources close to the deal told City A.M. that SUEK still plans to push on with the float at the end of the summer after a “one or two month” delay.

The two IPO delays are the latest in a string of problems to hit London’s equity capital-raising market.

Last week, senior executives at BlackRock, one of the world’s biggest investors, sent a letter to investment bankers criticising “frustrating” practices in the London IPO process. The letter said: “We expect to value companies seeking to float at a discount to such a peer group.”

One senior banking source told City A.M. that some investors are particularly disgruntled over the current book-building model for London floats, whereby companies choose a price range after gauging demand.

This compares to the traditional model formerly common in the City, whereby bankers would evaluate demand in the industry and then build a book around a fixed price that represented a discount to a company’s sector.

And one blue chip investor also said that many sellers in Russian floats were not prepared to price in enough political risk.

But another senior banker said that with a lot of private equity cash available, “I don’t see why banks should be bending over backwards to make fund managers happy”.

THE withdrawal of Domodedovo’s planned $1bn float is a blow for Dmitry Kamenshchik, who owns 100 per cent of DME Limited, which owns the airport. He made his fortune by starting the East Line Group, a
company that transports goods to Russia from China and invested in building Moscow’s busiest airport.