Research Notes

Investment and real estate development group Open Investments (OI), one of the largest businesses on the real estate market in Moscow and the Moscow region and a subsidiary of holding company Interros, is gearing up for an SPO to raise around $500 mln to fund its current projects and also ramp up its land base.

The company intends to issue 2,038,930 additional shares or some 17.7% of its current charter capital. In the process, the company's current shareholders will enjoy the right of first refusal to acquire SPO shares in proportion to their holdings in the charter capital. Interros, which presently controls around 58% of OI announced its intention to exercise the preemptive right and buy over 1,179,000 shares of the additional issue.

In H107 OI showed robust improvements in its financial performance and also pursued a strategy geared toward expanding its land base for the execution of future projects in the countryside real estate segment. As of July 1, 2007 the company's land base equaled 5,600 ha or up more than 7 times YTD.

Further projects in the commercial real estate segment will push up the company's cash flows amid a shortage of commercial and retail spaces and also a spike in lease rates.

We are of the opinion that the company's strong positions on the dynamically developing countryside real estate market, rapid growth in the company's net assets and also diversification of its project portfolio, which makes it possible to lower investment risks, will drive up the investment appeal of OI stocks.

According to our estimates, the current fair price of the company's shares is $305, which implies 3% upside to the current stock valuations. As shareholders willing to buy SPO stocks will enjoy the preemptive right and taking into account the fact that there will be a certain time lag between the SPO placement and the time when it will be possible to sell stocks on the market, we believe that the additional shares will be floated at a certain discount to the market prices. Given the target price we calculated and the company's stock performance in recent weeks we advise investors to pick up SPO shares during the offering below $275 per share.

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Sergey Filchenkov

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