November 15, 2017 / 2:20 PM / 2 years ago

UPDATE 1-Shares in Russia's Magnit fall after stake sold for investment cash

* Magnit co-owner sells 7.5 pct stake at 11 pct discount

* Shareholder will reinvest proceeds in new shares

* Magnit to use proceeds from new share sale to fund expansion

* Analysts say accelerated fundraising suggests M&A imminent (Writes through, add details, context, quotes)

By Olga Sichkar and Polina Devitt

MOSCOW, Nov 15 (Reuters) - Shares in Russian low-cost food retailer Magnit fell 9 percent on Wednesday after its main owner sold a stake at a big discount, raising around $730 million which the company said will be re-invested in the business.

Magnit said the proceeds would be used to invest in store roll-outs and refurbishment as well as food production but the method of raising the cash led to speculation among analysts that Magnit wanted it to finance an acquisition.

Natalya Kolupaeva, an analyst at Raiffeisenbank in Moscow, and Alexei Krivoshapko, director at investment fund Prosperity Capital Management, both said the timing and the speed of the fundraising suggested Magnit was likely planning an acquisition.

Retailers in Russia were hit by an economic downturn as the rouble weakened in 2014 and squeezed disposable incomes, but they are currently seeing signs of recovery as the economy has returned to growth and more stores are being opened.

The shares sold on Wednesday were owned by Magnit’s founder Sergey Galitskiy who directly holds a 35-percent stake.

Lavreno Limited, a company affiliated with Galitskiy, sold 7,100,000 shares or a 7.5 percent stake in Magnit at 6,185 roubles ($103) each - an 11 percent discount to Tuesday’s closing price. The accelerated bookbuild (ABB) raised 44 billion roubles.

In a second phase of the deal, Magnit will issue new shares which will be acquired by Lavreno at the same price, using the proceeds from the ABB.

Dmitry Bolyasnikov, executive director of equity capital markets at deal bookrunner VTB Capital, said the so-called top-up structure was used to allow Magnit to raise funds quickly while minimising the risk of information being leaked.

Shares in Magnit were 9.11 percent lower by 1229 GMT at 6,316 roubles in Moscow, making Magnit the worst performer for the day in the broader market index.


Magnit, which in the last quarter of 2016 lost the No. 1 spot to X5 Retail Group in terms of sales, has seen its stock tumble in the past months due to a slowdown in the company’s sales growth and profit fall.

Its plan is to carry on expanding and refurbishing stores.

“We continue to believe that the new store concept is sufficiently competitive and that management is correct in wanting to accelerate both the rollout and renovation process,” analysts at Citi said in a note.

Magnit, which has more than 15,000 stores, remains one of only a handful of companies capable of raising a large amount of money in one day, according to Prosperity’s Krivoshapko.

“It’s a symbol of quality. The scheme is (aimed) to get the money quickly. An additional share issue takes 90 days - and this way the money is already raised. Galitskiy may then lend it to the company,” Krivoshapko said.

One asset manager who asked not to be named said he was nevertheless surprised that the shares were sold on Wednesday at such a steep discount given that Magnit had already lost around 40 percent of its stock market value since mid-September.

According to VTB, 41 percent of the investors who bought the shares were from the United States and 35 percent from Britain, while 22 percent was allocated to Russian investors.

VTB’s Bolyasnikov said Magnit had previously sold shares at a similar discount with the timing and the price depending on how urgently it needed cash.

He added the deal could lead to Magnit, based in Krasnodar, southern Russia, increasing its weight in the MSCI Russia index , the Russian section of a leading emerging markets benchmark.

Magnit said in addition to investing in its stores and food production a portion of the proceeds may also be used to optimise debt and finance operations.

$1 = 60.2400 roubles Reporting by Olga Sichkar, Polina Devitt, Olga Popova and Maria Kiselyova; writing by Maria Kiselyova and Polina Devitt; editing by Elaine Hardcastle

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