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Russia Markets: Big Bucks Sought for Russian Internet IPO


Partying like it's 1999, Russia's upcoming IPO is set to float shares at 55 times earnings.

A young company set to float shares at 55 times EBITDA. Investment bankers hawking a $5.7 billion valuation based on exponential expansion projections. Have we gone to sleep and had a sweet dream about 1999? No, the time is the present but the place is Russia., Russia's second biggest internet presence after search-engine Yandex, released a target price range for its IPO scheduled next month on the London Stock Exchange, and it exceeded already generous market expectations. The Moscow-based company looks to raise as much as $876 million for 16% of its shares, a killing that would make a global tech player of its founder and CEO, Yuri Milner.

Moscow investors, burned by many an IPO before, largely looked askance at's extravagant valuation. "Who would buy it? Well, there's a sucker born every minute," one seasoned Russian fund manager quipped. But the company is looking over their heads toward a core of global enthusiasts that have lately paid similar prices for Chinese net entities.'s bankers at Goldman Sachs, (GS) JP Morgan, (JPM), and Morgan Stanley (MS) let the press know the issue is already fully subscribed two weeks ahead of final pricing on November 7.

Milner, the first known Russian to get a Wharton MBA and a former lieutenant of jailed oligarch Mikhail Khodorkovsky, started his internet business in the early 2000s with a simple idea: copy what worked in the West. This led him to create itself, a Yahoo (YHOO) lookalike that combines home internet hook-up with a master portal, and, a knock-off of Milner and his partners also own about one-quarter of v'Kontaktye, the Russian-language version of Facebook, and 2.4% of actual Facebook, enough to earn Milner some well-publicized hobnobbing time with Mark Zuckerberg. (formerly known as Digital Sky Technologies) may be overhyped as a stock. But the story reminds us that more is going on in Russia (and other emerging markets) than corrupt officials and belching oil derricks. Online Russians are the world's most intensive social networking users, according to at least one study, nudging out Israel and Turkey for most hours spent posting on one another's walls. And unlike Chinese surfers, their traffic is uncensored. The greatest intensity is still to come, as only half of all Russian homes have internet at all yet, and broadband penetration is a mere 22%.

This week brought another, back-handed tribute to Russia's tech potential too, as police busted the man thought to be the country's top spammer. The global volume of e-junk plugging penis enlargements and cut-rate offshore Viagra (PFE) dropped by 20% immediately after his arrest.

The big news in old-line metal-bashing industry came from reports that French-Japanese automaker Renault-Nissan may increase its 25% stake in AvtoVAZ, the perennially ailing warhorse of the Russian road, and under some scenarios could take a majority. Renault CEO Carlos Ghosn told a Russian TV interviewer he was talking to local investment bank Troika Dialog about buying its one-quarter stake in VAZ, whose 1970s-vintage rolling boxes, called Lada abroad and Zhiguli at home, continually lose market share despite heroic state efforts to protect them. A Ghosn regime on the Volga (where VAZes are churned out) would be a revolution indeed.

A statement by Troika cautioned the talks are in "a very early stage." The permutations are complex. Vladimir Putin reportedly proposed that Russia buy the French state's 15% stake in Renault in exchange for Renault investing more heavily in AvtoVAZ. Paris is unlikely to buy this proposal, but watch for more developments.

In Other News:

Kaboom! Russian arms exports will jump to $10 billion this year, even though the country is abiding by an Iran arms embargo. With around two thirds the exports of the US in 2009, Russia is the world's second largest arms exporter.

The Kremlin opens a new feud with Exxon Mobil (XOM) over the gargantuan Sakhalin-1 oil project, but cozies up to China for investment in Russian coal.

Ukraine still wants a better gas deal. Buy shares in European electric-heater manufacturers.

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