Mideast turmoil claims first victim in HK market
The Middle East turmoil has claimed its first high-profile victim on Hong Kong's capital markets.
Russian oligarch Oleg Deripaska's electricity supplier Eurosibenergo has shelved its US$1.2 billon Hong Kong initial public offering after Middle Eastern sovereign wealth funds that planned to buy into the deal pulled back at the 11th hour, people involved in the transaction said.
'The problems in the Middle East mean people we are in talks with there may take longer to make a decision,' someone working on the Eurosibenergo deal said. Another insisted Eurosibenergo was still in 'advanced talks with potential cornerstone investors', in the Middle East and China. But, he added, political turmoil in the Arab world meant those talks were 'going to take longer.'
Eurosibenergo, which owns hydropower plants in Siberia, was due to start its IPO roadshow this coming Monday. Its bankers put the brakes on late on Thursday evening.
Deripaska, 42, has consistently targeted Hong Kong as a money-raising venue for parts of his sprawling resources empire but has been dogged by disappointments and delays.
This is the second time Eurosibenergo has postponed its flotation. The company has been targeting Middle Eastern government funds after a lacklustre response from Chinese investors first time round, though mainland utilities company China Yangtze Power has signed up buy US$168 million worth of shares.
Last May, Deripaska cancelled a US$200 million Hong Kong IPO of Strikeforce Mining, Russia's largest molybdenum producer. Molybdenum is an element used to make steel. Rusal, his aluminium company, became the first Russian business to list in Hong Kong last January. The stock is now trading 26 per cent above its HK$10.80 IPO price. But the deal was postponed several times as Hong Kong regulators weighed the risks of allowing Rusal, which had a massive debt pile when it began marketing its IPO, to sell stock to retail investors.
It is unclear exactly why Deripaska has exclusively chosen Hong Kong as an IPO venue. But he has been repeatedly denied multiple entry visas to the US, despite interventions by the Kremlin. The Wall Street Journal reported in 2009 that the FBI has questioned Deripaska about potential links to Russian organised crime, citing Obama administration officials. Deripaska has consistently denied that report.
Bankers often court Middle Eastern sovereign funds, which invest the region's oil dollars, to buy large chunks of big IPOs.
Eurosibenergo's IPO may not be the only big deal that gets derailed by the so-called Jasmine Revolution, a chain of pro-democracy protests around the Arab world that began in Tunisia in late January and have so far spread to Egypt, Bahrain and Libya.
The protests are pushing up Middle Eastern governments' costs of borrowing on international markets, which may curtail their investments. Standard & Poor's has cut Bahrain, Egypt and Libya's credit ratings, meaning they will have to pay higher interest on their debts.
Even Abu Dhabi, which remains peaceful, is likely to pay higher borrowing costs than it has previously when it issues new bonds later this month, Bloomberg reported on Wednesday.