Choosing the Right Underwriter

24 November 2011

The First Steps

2

Request for Proposal (RFP)

Can either be written by the company or by an already closely-associated bank

In case of Russian equity transactions, some key criteria are the following:

• Experience in Russian IPOs / all equity transactions

• Experience in IPOs / equity transactions in the relevant sector

• Research analyst and ranking

• Marketing and distribution capabilities

• Team on the ground to execute the transaction

• References from previous transactions

• Fees and syndicate structure

RFP Process

Draft RFP

Banks Submit

Responses

Short-list

Top Banks

“Bake-off”

Presentations

Syndicate

Selected

Deal Value ($ Bn)

0.5

0.6

0.6

0.9

0.9

1.1

1.1

0 1 2

RenCap

Credit Suisse

JPMorgan

VTB Capital

Deutsche Bank

Goldman Sachs

Morgan Stanley

Deal Value ($ Bn)

How Experienced are the Banks?Sorting through the maze of credentials

3

Key Elements to Take into Account when Assessing Credentials

• Russian equity market effectively opened in 2005

• Just as important is to ask for most recent (last 12 months) list of transactions executed by the bank

– You want to hire a bank, which has not only relevant but also recent experience in selling deals

• League tables:

– Likely to show that every bank is #1 in every area

– Set out very clear parameters for league tables such as specific number of years, exact region, IPOs only / all equity / including, excluding equity – linked transactions

Deal Value ($ Bn)

3.5

3.5

4.0

4.0

6.6

9.1

7.7

0 5 10

Citi

JPMorgan

Credit Suisse

Goldman Sachs

RenCap

Deutsche Bank

Morgan Stanley

Deal Value ($ Bn)

Russian IPOs since 2005

Source Dealogic

Number of Deals

Russian IPOs last 12 months

4

4

4

4

4

4

5

Number of Deals

6

6

16

8

24

24

23

Source Dealogic

The Transaction TeamIt’s a long process ahead, so make sure you feel comfortable with the working group

4

Team on the Ground to Execute Your Transaction

• Important to know which individuals will be running the deal

– Determine the relevant language requirements; will the project be run in Russian?

– Make sure not only the coverage banker speaks the language, but ideally equity capital markets and industry bankers as well. This will ease the communication day to day

• Do not be afraid to hire teams of advisers that will disagree with you, they are not being paid to be your “yes men”

• References:

– Ask for these and actually call the people whose contact details were provided

Selling the Deal to InvestorsA bank’s relationship with key investors is often crucial for closing a deal

5

Key Criteria for Research and Distribution

• Research:

– Analyst ranking (Institutional Investor Survey, Extel)

– Experience of deal research

• Distribution:

– Russian banks traditionally have higher trading share, especially when it comes to local lines of stock

– Most banks have good access to fund managers

– What is key however, is up-to-date knowledge of investors, which are willing to invest money at any particular moment in time

– This knowledge comes only from doing recent deals

Syndicate Size and Fees

6

Fees:

• Cheapest does not mean best: “you pay peanuts, you get monkeys”

• Market rate is fair

• Be fair about payment of the incentive

Syndicate size & composition

• Depends on size of the transaction, though the tendency for Russian deals has been toward larger syndicates, with Europe exhibiting a similar trend

• Larger syndicate does not mean better syndicate. Find a balance

• At least one Russian bank in the syndicate has become the norm

– 73% of deals in 2011 have had a Russian bank as opposed to 48% from 2005 to 2010(1)

• Global coordinators / Bookrunners / Co-bookrunners / Co-lead managers

– Look at precedents and speak to your trusted advisor to create right syndicate structure

Average Syndicate Size for Russian Equity Deals(1)

2011 YTD

2005–2010

Deals <$750 MM

Deals >$750 MM

2.7 3.5

1.8 3.0

Average Syndicate Size for European Equity Deals(1)

2011 YTD

2005–2010

Deals <$750 MM

Deals >$750 MM

1.8 3.3

1.5 2.6

Notes

1. Deals larger than $100 MM and excluding rights issues