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Comment of Dmitry Bolyasnikov, Executive director, equity capital markets at VTB Capital for Bloomberg

15 November 2017
Magnit’s Discount Share Sale Drives Slump to Four-Year Low

Magnit PJSC, Russia’s second-largest retailer, fell to the lowest since April 2013 after its billionaire owner sold shares at an 11 percent discount to help fund a program aiming to bring back customers and restore profitability.

Lavreno Ltd., linked to Magnit founder and head Sergey Galitskiy, promised to use the sale proceeds to buy 45.5 billion rubles ($755 million) of new Magnit shares, according to regulatory filings on Wednesday. Magnit will spend about 60 percent of the cash on store rollouts and most of the rest on food processing, it said earlier.

Magnit used Lavreno to hold a secondary offering to speed up the sale and reduce risks, said Dmitry Bolyasnikov, executive director for equity capital markets at VTB Capital, which managed the sale along with Merrill Lynch. “If Magnit sold new shares in the market, this would’ve required up to two months of corporate and regulatory approvals and disclosures that could’ve put serious pressure on prices,” he said.
About 41 percent of demand for the Magnit offering came from the U.S., 36 percent from the U.K., 22 percent from Russia and 1 percent from continental Europe, according to VTB Capital.

“Magnit wanted to raise the money quickly to be ready for expansion, including potentially buying regional retail chains,” said Natalya Kolupaeva, an analyst at Raiffeisenbank in Moscow. “Magnit plans to boost capital expenditure in 2018 from about 100 billion rubles this year as it’s building new stores aggressively, renovating the old ones and investing in its own food production.”

Magnit, once a favorite of investors, dropped as much as 11 percent in Moscow trading, extending a slump this year to about 42 percent. The company’s profitability shrank in the third quarter, forcing analysts to lower forecasts and delay hopes for a quick turnaround as it chases competitor X5 Retail Group NV, which passed it by revenue at the end of last year.

Lavreno agreed to sell 7.1 million shares through accelerated bookbuilding for 6,185 rubles apiece, and then buy 7.35 million new shares from Magnit at the same price, the retailer said Wednesday in a filing. Magnit closed at 6,949 rubles on Tuesday.

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