Nord Gold IPO Going AheadHowever, they might not get the upper valuations that they were looking for.
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DEAL WATCH: Nord Gold IPO Looks To Overcome Caution On Russia
By Margot Patrick
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Nord Gold NV, the gold miner being spun off from Russia's Severstal JSC (CHMF.RS), is aiming to overcome a ripple of investor caution toward Russia and other emerging markets that is weighing on new share deals.
Executives of the Netherlands-incorporated company are wrapping up investor meetings Wednesday and are to set the price late Thursday on a roughly GBP825 million initial public offering valuing the company at around GBP2.8 billion. Order books close Thursday at 1600 GMT and the results will be announced Friday morning at the London market open.
But they must convince investors that the valuation covers the near-term risks of volatile markets that led one Russian company to pull its planned IPO last week and another to cut the size and price on its IPO Tuesday.
"There have been outflows of cash from global emerging market funds, which makes portfolio managers more cautious about putting money to work when the asset base is shrinking. Consequently, investors can afford to be selective," one IPO banker said.
According to data provider EPFR Global, investors redeemed more than $7 billion from emerging-market stock funds in the week to Feb. 2, the biggest weekly outflow in three years, amid worries over emerging-market valuations, the implications of higher inflation and unrest in Egypt. Russian funds actually attracted net new money though, EPFR said.
Russian coking coal company Koks Group put on ice its planned $600 million IPO last week after failing to get the valuation it wanted, while industrial pumps maker HMS Hydraulic Machines & Systems Group PLC (HMSG.LN) was forced to downsize its deal Tuesday, raising $360 million.
HMS Hydraulic global depositary receipts at 0920 GMT were down 25 cents on their offer price, at $8.00.
Bankers working on the Nord Gold deal said there has been good interest from a broad range of investors, while acknowledging that market conditions could hinder the company from getting the upper valuation of GBP3.2 billion it had sought. Up to 239 million new and existing shares including a 15% overallotment are being offered, at between 300 pence and 390 pence a share.
"We have the scale and size investors are looking for and there is fundamental interest in a new gold mining stock," one banker on the deal said.
Apart from the emerging markets angle, the Nord Gold offer is also reliant on investor confidence that gold prices will remain buoyant after a 30% rise in 2010. Gold hit a two-week high Tuesday, helping to reverse a January decline. While gold is benefiting from the current risk aversion that is driving investors out of emerging market stocks, analysts have mixed views on its longer-term prospects in a generally improving global economy that diminishes its "safe-haven" appeal.
Investors in Nord Gold also must have confidence in the company's managers' ability to boost production at its mines, some of which it has only owned for a short time.
Through a series of acquisitions over three years, Nord Gold has mining assets in Russia, West Africa and Kazakhstan and is targeting production of more than 1 million ounces of gold by 2013. In 2010, it produced about 589,000 ounces, a figure that includes only a partial contribution in the year from a newly acquired mine in Guinea the company expects to be one of its biggest producers.
Meanwhile, another Russian IPO, from pipes maker Chelyabinsk Tube-Rolling Plant (CHEP.RS), known as ChelPipe, is due to be priced later Wednesday in London, at between $3.50 and $4.60 per share and global depositary receipt. The offer values the company at between $2 billion and $2.7 billion. Results of the offer are to be announced Thursday morning.
And Russian bank VTB Group (VTBR.RS) is meeting with investors in London about a $3.5 billion share sale by its majority-owner, the Russian government.