Russian pay channel TV Rain to merge with online magazines for IPO

Three Russian media outlets – online television channel TV Rain, also known as Dozhd, and two online newspapers Slon.ru and Bolshoi Gorod – will merge and hold an initial public offering (IPO) on the Moscow Exchange in the nearest future.

The owner of the outlets, Alexander Vinokurov, said in June that the 300–700 million ruble floatation will take place as soon as all necessary legal procedures are done. He did not disclose the exact dates of the IPO, while analysts said that the floatation is likely to take place next year.

The main goal of the IPO is to raise money for the television channel, Vinokurov told Russian Connection. The future holding will use the funds to buy equipment for a new studio for the channel. TV Rain will continue residing at the Krasny Oktyabr complex in central Moscow for a while, but will need a studio in the future, Vinokurov said.

Nordea Bank senior analyst Dmitry Savchenko said that another goal of the IPO is to diversify risks.

“Such placements cannot raise the required amount unless … insiders already know approximately who and how much will invest. So, logic says there are chances for a successful placement,” Savchenko said.

The holding may offer shares at the Innovation and Investment Market (iIM) segment of the Moscow Exchange and will succeed in attracting risk-hungry private and institutional investors, Investcafe analyst Timur Nigmatullin told Russian Connection.

The analyst estimated the holding’s 2013 revenue at about 530 million rubles, with the channel accounting for almost 70% of the figure. “I think that depending on geopolitical environment and the restoration of broadcasting, the asset may be valued at 1.0–1.5 revenues, or 500–750 million rubles,” he said.

Major broadcasters, including state-controlled Rostelecom and private satellite television operator NTV Plus, stopped taking TV Rain’s signal early this year following the channel’s scandalous poll on the siege of Leningrad during the World War II. After the boycott, TV Rain lost 85% of its coverage and was on the verge of a closure.

On June 16, the channel became available for clients of satellite operators across Europe and European Russia via the Astra A4 satellite.

There are several traded firms from the same industry as TV Rain on the market: media groups RBC and Mediaholding (former O2TV). RBC’s capitalization amounts to 1.6 billion rubles on the Moscow Exchange, and Mediaholding is 90 million rubles.

Media business is developing aggressively and is attractive to investors, although country risks may curb investor appetite. “As to Russian investors, political issues may limit their participation in the placement…On the whole, we cannot say that this year is good for foreign investors due to political events,” Promsvyazbank senior analyst Igor Nuzhdin said.

Investcafe’s Nigmatullin also said that the IPO is unlikely in 2014 due to its small scale and could be delayed at least until 2015.

An IPO is now virtually the only way of raising funds for small firms lacking good debt collaterals, Finam analyst Anton Soroko said.

“In these conditions an IPO as a tool of raising foreign funding, which ensures no worsening of debt parameters, may act as one of the most appropriate solutions to the lack of funds. In future, a public status will provide the company with advantages by reducing the cost of borrowing on the open market,” he said.

Vinokurov said that TV Rain has fully switched to a pay model in September 2013, and its audience has been rising. Slon.ru also hid a part of its content behind a paywall earlier this week.

Analysts think that the shift to pay content will not push the number of clients down. “TV Rain occupies a niche with a low level of competition,” Investcafe’s Nigmatullin said.

The audience of TV Rain has been rising over the past year, according to the data of domestic TV-viewing research company TNS Russia’s TV Index Plus project.

Cumulative reach	March–May 2013	June–August 2013	September–November 2013	December 2013–February
Number of people, mln	17.791	17.963	18.596	19.443
Share, %	26.3	26.6	27.5	28.5

The cumulative reach represents the number of people who watched the channel at least for a minute at least once in the reported period. The research represents the population of Russia living in cities with 100 000 or more people, aged 4 years old or older, or 68 169 441 people.

The number of households having access on their domestic TV-sets to the channel expanded to 11.062 million households in December 2013 - February 2014 from 9.628 million in March - May 2013.

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