UPDATE 2-Moscow Exchange to float, could raise $500 million

Mon Jan 21, 2013 1:38pm GMT

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* IPO follows 2011 merger of Moscow's exchanges

* Exchange could be valued at $4.2 bln-$6.5 bln-source

* Reforms underway to improve country's financial markets

* Scepticism it will stem tide of companies listing abroad

By Megan Davies

MOSCOW, Jan 21 (Reuters) - Moscow's stock exchange plans to float on its own platform, seeking to revitalise Russia's capital markets and convince companies to list domestically rather than abroad.

Shareholders of the Moscow Exchange, Russia's main venue for trading in stocks, bonds, foreign exchange and derivatives, are expected to sell stock worth at least $500 million, one source familiar with the situation said on Monday.

The exchange is valued at between $4.2 billion and $6.5 billion by the banks organising the initial public offering (IPO), a second financial source said.

The exchange's dominant position in Russia's markets and expected benefits from reforms such as upgrades to clearing and settlement could attract investors.

"It's a really interesting asset in its own right - it's unusual as an exchange as it has several different business lines with equity, forex and derivatives," said Roland Nash, chief investment strategist at Moscow hedge fund Verno Capital.

"Putting it all together, it certainly removes a big part of the reason why Russian stocks are discounted."

Consolidating Moscow's markets has been backed by the Kremlin in a bid to transform the Russian capital into a global financial centre.

Investors cautioned, however, over the long-seen trend for Russian companies to seek listings in London and New York, continued scepticism about shareholder rights in Russia and a slump in trading volumes of Russian stocks.

"We don't see a pickup in volumes and with that in mind it's a hard sell if you want to push Russian companies to list domestically at this point in time," said Peter Westin, chief equity strategist at Moscow brokerage Aton.

The volume of MICEX-traded stocks fell around 40 percent last year, to 9.1 trillion roubles ($300 billion), according to figures provided by the exchange.

"This is the major national stock exchange with the major depository to go with it, but it's a monopoly providing services which are less and less needed," said Steven Dashevsky, founder of hedge fund Dashevsky & Partners.

"To be really honest, if tomorrow the Russian stock market ceases to exist, its impact on the broader economy will be minuscule."

MARKET REFORMS

The Moscow Exchange was formed in 2011 following the merger of Moscow's two largest stock exchanges, MICEX and the RTS, with a view to float this year. 

MICEX-RTS was valued at $4.5 billion when the two exchanges combined in a merger billed at the time as creating a 'one-stop shop' for trading a full range of financial instruments.

The groundwork for the IPO has been laid by improvements to Moscow's capital markets such as the commissioning of a new central securities depository in November to simplify trading and settlement.

But investors remain concerned that proposed changes to Russia's pension system will curtail the pool of retirement savings that can be invested in stocks.

"The missing link to the Russian equity market is the domestic funds and that requires essentially pension fund reform," said Verno's Nash.

Details of the IPO were limited, but shares will be offered to institutional and retail investors in Russia, to offshore investors and qualified institutions in the United States.

The exchange's largest shareholder is Russia's central bank, which will retain its 24.3 percent stake. Other shareholders are banks and brokers such as Sberbank with 10.3 percent, Unicredit, VTB, Gazprombank, U.S. private equity fund Cartesian Capital and Russian state-backed private equity fund the RDIF.

The exchange has a deadline of June 30 to float, after which point RTS shareholders could exercise a put option allowing them to sell their shares back to the exchange.