* Lenta market capitalisation implied at up to $5 bln
* Valuation below Magnit, above O'Key - analyst
* Sale comes as Russia's economy slows, rouble weakens
By Olga Popova
MOSCOW, Feb 14 Russian hypermarkets chain Lenta,
part-owned by U.S. private equity firm TPG, has set a
price range for its planned London share market offer, valuing
the company at up to $5 billion.
Lenta is among a number of retail companies hoping to tap
into a demand from foreign investors for stakes in
consumer-oriented businesses in Russia and follows the
successful flotation of telecoms firm Megafon
back in 2012 and Russian consumer credit firm TCS
Other consumer-focused IPOs are expected such as children's
goods retailer Detsky Mir, owned by oil-to-telecoms conglomerate
Sistema, corporate and individual loans bank Credit
Bank of Moscow and German retailer Metro AG's Russian
"The Russian consumer space is consistently one of the
fastest growing across the emerging market world," said Chris
Weafer, a senior partner with consultancy Macro-Advisory.
"The difficulty (Lenta) will come up with is whether or not
they have to adjust the valuation to reflect ... emerging market
phobia and some concerns whether the slowdown in the Russian
economy may have a greater impact on consumer activity."
Emerging markets have seen outflows and currency volatility
in recent months as investors worry about lower growth and the
ending of the U.S. Federal Reserve's monetary stimulus program.
Russia's economy is also flagging - growth fell from an
average 7 percent a year to just over one percent last year,
causing a slowdown in consumer sectors such as auto sales and
some of Lenta's rivals have seen growth rates start to slow.
Last month Russia's biggest food retailer Magnit
reduced its sales growth forecast for the year while
third-biggest food retailer Dixy has reported
annualised sales growth in December and January slowed to 17
percent from 24-25 percent in November and October.
LENTA SHARE PRICING
The price range for Lenta's offering is set at between $9.5
and $11.5 per global depositary receipt (GDR), Lenta said in a
statement on Friday, confirming an earlier Reuters report, with
five GDRs equalling one Lenta share.
A roadshow for investors will run until Feb 27, after which
the offer price is to be announced.
The indicative price range implies a market capitalisation
of between $4.09 billion and $4.95 billion, with the sale of
some 19 million shares or 22.1 percent of existing share
capital, Lenta said.
Lenta has said TPG, which owns a 49.8 percent stake, will
sell some but not all of its shares, as will the European Bank
for Reconstruction and Development, which holds 21.5 percent,
and Russian bank VTB, which owns 11.7 percent.
"Operationally the business is good but there are a couple
of question marks about the deal," said Bruce Bower at hedge
fund Verno Capital. "They are not raising money as a company,
the deal is secondary - it is basically a cash-out for existing
shareholders. I think that fact will put pressure on the deal
Chief Executive Jan Dunning said in a statement the group
was in a strong position to capture the significant growth
potential in what he described as a fragmented and
under-penetrated Russian food retail market.
Lenta reported a 38 percent rise in net profits last year to
7.1 billion roubles ($202 million), on sales up 31 percent at
144.3 billion roubles.
Founded 20 years ago in Russia's second city of St
Petersburg, Lenta now operates 77 hypermarkets in 45 cities
across Russia and 10 supermarkets in and around Moscow.
TPG and VTB took stakes in 2009 and two years later bought
up U.S.-born entrepreneur August Meyer's 41 percent stake
following an acrimonious dispute over the company's management.
Analysts at Bank of America Merrill Lynch said in a research
note that Friday's pricing implied a 2013 estimated
price-earnings multiple of 18.4-22 times, a discount to Magnit
but a premium to rival hypermarkets operator O'Key,
which has a market value of around $3 billion.
The banks advising on Lenta's IPO are JP Morgan Chase & Co
, Credit Suisse, UBS, Deutsche Bank
and VTB Capital. TPG Capital is acting as a
co-manager while Rothschild is financial adviser to Lenta.