Russian hypermarkets chain Lenta, part-owned by U.S. private equity firm TPG , has set a price range for its planned London share market offer, valuing the company at up to $5 billion.
Lenta is among a number of retail companies hoping to tap into a demand from foreign investors for stakes in consumer-oriented businesses in Russia and follows the successful flotation of telecoms firm Megafon back in 2012 and Russian consumer credit firm TCS last year.
Other consumer-focused IPOs are expected such as children's goods retailer Detsky Mir, owned by oil-to-telecoms conglomerate Sistema , corporate and individual loans bank Credit Bank of Moscow and German retailer Metro AG's Russian cash-and-carry business.
"The Russian consumer space is consistently one of the fastest growing across the emerging market world," said Chris Weafer, a senior partner with consultancy Macro-Advisory.
"The difficulty (Lenta) will come up with is whether or not they have to adjust the valuation to reflect ... emerging market phobia and some concerns whether the slowdown in the Russian economy may have a greater impact on consumer activity."
Emerging markets have seen outflows and currency volatility in recent months as investors worry about lower growth and the ending of the U.S. Federal Reserve's monetary stimulus program.
Russia's economy is also flagging - growth fell from an average 7 percent a year to just over one percent last year, causing a slowdown in consumer sectors such as auto sales and some of Lenta's rivals have seen growth rates start to slow.
Last month Russia's biggest food retailer Magnit reduced its sales growth forecast for the year while third-biggest food retailer Dixy has reported annualised sales growth in December and January slowed to 17 percent from 24-25 percent in November and October.
LENTA SHARE PRICING
The price range for Lenta's offering is set at between $9.5 and $11.5 per global depositary receipt (GDR), Lenta said in a statement on Friday, confirming an earlier Reuters report, with five GDRs equaling one Lenta share.
A roadshow for investors will run until Feb 27, after which the offer price is to be announced.
The indicative price range implies a market capitalization of between $4.09 billion and $4.95 billion, with the sale of some 19 million shares or 22.1 percent of existing share capital, Lenta said.
Lenta has said TPG, which owns a 49.8 percent stake, will sell some but not all of its shares, as will the European Bank for Reconstruction and Development, which holds 21.5 percent, and Russian bank VTB , which owns 11.7 percent.
"Operationally the business is good but there are a couple of question marks about the deal," said Bruce Bower at hedge fund Verno Capital. "They are not raising money as a company, the deal is secondary - it is basically a cash-out for existing shareholders. I think that fact will put pressure on the deal pricing."
Chief Executive Jan Dunning said in a statement the group was in a strong position to capture the significant growth potential in what he described as a fragmented and under-penetrated Russian food retail market.
Lenta reported a 38 percent rise in net profits last year to 7.1 billion roubles ($202 million), on sales up 31 percent at 144.3 billion roubles.
Founded 20 years ago in Russia's second city of St Petersburg, Lenta now operates 77 hypermarkets in 45 cities across Russia and 10 supermarkets in and around Moscow.
TPG and VTB took stakes in 2009 and two years later bought up U.S.-born entrepreneur August Meyer's 41 percent stake following an acrimonious dispute over the company's management.
Analysts at Bank of America Merrill Lynch said in a research note that Friday's pricing implied a 2013 estimated price-earnings multiple of 18.4-22 times, a discount to Magnit but a premium to rival hypermarkets operator O'Key , which has a market value of around $3 billion.
The banks advising on Lenta's IPO are JP Morgan Chase & Co , Credit Suisse , UBS , Deutsche Bank and VTB Capital. TPG Capital is acting as a co-manager while Rothschild is financial adviser to Lenta.
($1=35.2125 Russian roubles)
(Additional reporting and writing by Katya Golubkova, Megan Davies and Maria Kiselyova; Editing by Jane Merriman and Greg Mahlich)