May 24, 2012 / 10:26 AM / 7 years ago

UPDATE 2-Georgian Railway pulls listing in latest IPO setback

* Georgia blames “challenging market conditions”

* Follows O1 Properties pulling London IPO this month

By Kylie MacLellan and Polina Devitt

LONDON/MOSCOW, May 24 (Reuters) - Georgia postponed a planned London listing of its state railways monopoly on Thursday, dealing a fresh blow to IPO markets as investors struggle with volatile share prices and reel from the debacle of Facebook’s flotation last week.

It is a setback to the London Stock Exchange, which has seen little initial public offering (IPO) activity over the past year as stock markets struggle with worries about euro zone debt. Earlier this month Russian real estate investor O1 Properties pulled its listing due to choppy markets.

Georgia also blamed its decision on volatile markets, with uncertainty over the future of Greece deterring investors from taking the risk of putting money into IPOs and emerging markets.

“An illiquid asset from Georgia, when the markets are the way they are, is always going to be very challenging,” said one source close to the deal.

Georgian Prime Minister Nika Gilauri said there was no direct link between the government’s decision to postpone the railways IPO, and the troubles surrounding Facebook’s high profile IPO in New York last week, as they were targeting different investors.

“But at the same time all investors, who are interested in IPOs in general, got more frustrated after Facebook,” Gilauri told Reuters by telephone. “They think that if Facebook, one of the most successful companies in the world, did not do well, Georgian Railway has no serious chances.”

Shares in Facebook have fallen 15 percent below its IPO price following a messy debut.

Georgia had planned to raise up to $250 million by selling as much as a quarter of Georgian Railway, as it looked to boost the company’s international profile and fund its long-term development.

“We realized that the price would not be high enough due to the current situation on the markets,” Gilauri said, adding that the company would go ahead with the IPO or issue Eurobonds as soon as the situation improved.

With markets wobbly, the company and its advisors had made every effort to improve the chances of a successful offering, including doubling the usual marketing period to gather as much feedback as possible from investors. The country’s prime minister even joined management teams on investor roadshows.

But with concerns over Greece intensifying since an inconclusive election this month, investors have become increasingly reluctant to take risk. IPOs are considered at the riskier end of the investment scale as they involve taking a punt on companies with little or no public track record.

Britain’s FTSE-100 index of blue chip stocks has fallen around 3 percent since the company, which provides mainly freight services, set its price range last week.

“I would (have been) very surprised if they could do it on these markets,” said a buy-side analyst from a Russian fund.

There was good interest in the stock, with several strategic investors putting in orders, including one committing $80 million, said the source close to the deal, but it had not been enough to fill the order books by the time they closed on Wednesday.

The company, which is involved in developing new routes such as the Baku-Tbilisi-Kars project providing a corridor from the Caspian Sea through Azerbaijan and Georgia to Turkey, saw its revenues rise 18 percent to $283 million in 2011.

Citigroup and Goldman Sachs were acting as joint global coordinators and joint bookrunners for the sale.

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