Research Notes

PIK Group, one of the leaders among Russian developers whose order book comprises over 400 projects, is looking to stage an initial public offering in late May or early June. This IPO stands a good chance of becoming the largest in the construction industry, after which the company could be valued at over $14 bln.

Given robust growth of the construction industry with support from state-financed housing programs as part of nationwide projects and greater strategic interest of major industrial investors, the company is able to ramp up construction volumes. Taking into account an expected spike in solvent demand on the back of growing household income and the rollout of mortgage lending options, we do not forecast a decline in real estate prices.

We are of the opinion that based on expectations of stronger demand developers are capable of maintaining fast growth in earnings at acceptable margin levels. This will allow construction firms to boost their cash flows in the near future.

Among the main constraining factors we would like to note the powerful influence of administrative leverage in the industry, consistently high industrial inflation and a growing shortage of promising construction sites.

The company mulls staging the IPO in late May or early June. During the offering investors will be offered 58 mln additionally issued common shares (11.28% of the enlarged charter capital) and in the event of heightened demand the company's current shareholders (Yury Zhukov and Kirill Pisarev) decided to offer an additional 96.2 mln shares they own (18.71% of the increased charter capital) on a 50/50 basis. Thus, the maximum amount of the stock placement could total 154.2 mln common shares or 29.99% of the company's increased equity capital.

The bookbuilding range was set at $25-31 a share (one share equals one GDR), which puts the company's market cap at $11.4 bln to $14.1 bln.

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Vladimir Sergievskiy

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