MOSCOW Russia's No.2 mobile phone firm MegaFon MGFON.UL is likely to price its stock market float towards the lower end of its guided range, sources said, in an offering expected to see the company raise less than $2 billion.
MegaFon, controlled by Russia's richest man, Alisher Usmanov, is selling global depositary receipts (GDRs) in London and Moscow, offering an alternative to New York-listed Russia market players MTS (MBT.N) and Vimpelcom Ltd VIP.N.
The company set a range of $20-$25 per GDR, to raise $1.7 billion to $2.3 billion and valuing the firm at $11.2 billion to $14 billion.
Sources said the order book for MegaFon's initial public offering (IPO) closed at 0900 EDT on Tuesday after being oversubscribed on Monday evening, with the placement likely to be priced in the lower half of the offer range.
Two financial market sources said they expected the offer to be priced at $20 a share. One source familiar with the matter said that orders for the offer were submitted at $20-$22.50 a share.
Sources cautioned there was no decision on price set at this stage.
After months of inactivity due to choppy markets, Europe has seen a pickup in initial public offerings since the start of September, but those working on deals say investors remain choosy about which companies to back and are not willing to pay over the odds.
Analysts have previously said that the Megafon IPO would only be interesting to investors if priced at a discount to New York-listed Russian rival MTS.
"At the low end of the range it's at a discount to MTS - at the high end, it is a premium," said one investor.
MegaFon, which declined comment, is expected to finalize the placement on Tuesday night, with pricing, allocations and trading to begin on Wednesday.
The offering would be the largest by a Russian company since aluminum firm Rusal (0486.HK) floated in Hong Kong in 2010.
The float earlier received an important endorsement when the head of Nordic telecoms group Teliasonera TLSN.ST, which is selling down its stake, signed up for MegaFon stock.
Teliasonera CEO Lars Nyberg said he would buy $2 million of MegaFon shares at the offer price in an expression of his strong belief in the company's prospects.
"As a member of the MegaFon board, making a sizeable investment in the company is a way for me to show my commitment," Nyberg said in a statement issued by Teliasonera.
Questions about corporate governance had prompted investment bank Goldman Sachs (GS.N) to drop out of the deal, while the UK Listing Authority signed off on the prospectus only after Usmanov pledged to keep overall control under a deal to restructure his and his partners' assets.
The bookbuilding process, in which MegaFon and its bankers pitched to investors in New York, London, Moscow and elsewhere to drum up orders, was also slowed down by the U.S. Thanksgiving holiday last week.
The deal received a boost after a large global investment fund placed an order for around $280 million worth of MegaFon stock, or more than a tenth of the issue, three sources said.
One source close to the deal called the quality of the order book "strong", with interest from long-only investors greater than from hedge funds, and buying interest better than when state-controlled Sberbank (SBER.MM), Russia's top bank, recently sold $5 billion in stock.
"I see a reasonable after-market," the source said, referring to likely demand for the shares following the IPO.
Teliasonera is selling down its 35.6 percent stake to just over 25 percent in the offering. MegaFon itself is selling treasury stock it bought in an ownership shakeup last spring.
If syndicate banks exercise an over-allotment option, MegaFon would have a fairly small free float of 17 percent, making it a more natural target for long-term investors than short-term traders.
Morgan Stanley (MS.N) and Sberbank are acting as joint coordinators, with Citigroup Inc (C.N), Credit Suisse CSGN.VX and VTB (VTBR.MM) as joint bookrunners.
(Additional reporting by Douglas Busvine and Maria Kiselyova; Editing by Hans-Juergen Peters)