After Ozon, Will This Be Russia’s Hot IPO For 2021

Outside of the niche emerging market universe on Wall Street, few pay attention to Russian stocks. The Russian trade is always about oil, gas, and finance. Over the years, successful newcomers have shown they’re where the real action is. Russia’s Google GOOG — Yandex YNDX — was the pioneer.

In November, it was Russia’s Amazon AMZN — Ozon — to follow in Yandex’s foot steps. The company raised $1.2 billion in its initial public offering on the Nasdaq NDAQ last month and is up 15.4% since, beating Yandex (up 5.5%) and Amazon (0.52%). Ozon was the biggest emerging market IPO to list in the U.S. in 2020. The company is backed by London- and Moscow-listed private equity giant Sistema, whose offices sit right outside Red Square.

Next year, another Russian company is slated to go public. It’s not as super sexy as tech, but it is not finance and it is not mining or oil and gas.

Sistema CEO Vladimir Chirakhov, who rang the opening bell on Wall Street on Ozon’s first trading day, told Reuters that the next Sistema company in line for a public markets debut is likely to be the Segezha Group, Russia’s biggest paper and pulp company.

There is a huge opportunity for Segezha to strip away China’s market share in the U.S. plywood market, allowing American companies from flooring to kitchen cabinet shops a chance to diversity away from the highly China supply chain.

70% of raw wood material demand is met through own logging; Segezha has 7.4m hectares of leased forest

Germany, Netherlands, and the U.S. already account for around 40% of their plywood exports. Most of their sawn timber goes to China, which China adds value and turns it into plywood or particle board that is then exported to the U.S.


A spokesman for Segezha did not confirm nor deny the Reuters article citing its majority owner, Sistema, in regards to going public next year. “We are constantly looking at a range of options to finance our future growth, including an IPO,” the press office said, adding that it was too early to discuss any plans.

And before we get too far ahead of ourselves, Segezha CEO Mikhail Shamolin never even mentioned the subject in a December 14 interview with business daily Kommersant.

Segezha’s “secret sauce” — as their media relations team puts it — is that it has access to millions of acres of birchwood and pinewood forests. Paper made out of this pulp tends to be “Siberian strong”.  The paper is used to make heavy-duty sacks that can hold cement and other construction materials. Segezha is the No. 2 paper sack supplier in Europe and the No. 3 supplier of sack paper globally.

They export most of what they produce. So its income is almost all in dollars and euros and its costs are in the much weaker Russian ruble, by comparison.

“Almost 100% of the company’s costs are denominated in ruble, and 70% of its revenue is in hard currency, which allows it to maintain an earnings margin above 20%,” says Alexander Vengranovich, an analyst at Renaissance Capital.

Segezha also makes packaging, competing with Sweden multinational Tetra-Pak.

“There are some structural trends that should support demand for Segezha’s key products over the mid-term, such as the rapid development of e-commerce,” Sova Capital’s Oksana Mustiatsa wrote in an October report.

And, maybe worth noting, Segezha is the package supplier to Ozon. As e-commerce grows in Russia, Ozon will truly become Russia’s Amazon, just as Yandex has become its Google. The only thing Yandex needs is an operating system to replace Google (it’ll happen).

If Segezha does list in 2021, it will find a welcome audience.

Long-time Financial Times reporter Jonathan Wheatley wrote last week that fund managers are pouring in emerging markets at year’s end.

FtForeign investors dash into emerging markets at swiftest pace since 2013

Fourth quarter demand for emerging market (EM) stocks and bonds (especially China’s) rose at their fastest pace since 2013, offsetting a record exodus from those EM securities at the start of the global pandemic in the second quarter.

Money is expected to continue pouring into the asset class in 2021, with several analysts forecasting a bumper year of inflows, Wheatley wrote.

Foreign investors bought around $145 billion worth of EM stocks and bonds in November, which is when Ozon went public, according to data from the Institute of International Finance.

And now in the most recent last four weeks, EM fund managers have invested almost $37 billion in emerging market debt and $40bn in equities. If the trend continues into 2021, look for more EM IPOs. Sistema has had a good track record with bringing companies public, including Russia’s largest toy store chain Ditsky Mir.

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