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Russian online companies the new investor darlings

Yandex founder and CEO Arkady Volozh celebrates Yandex listing on the Nasdaq exhange in New York
Yandex founder and CEO Arkady Volozh celebrates Yandex listing on the Nasdaq exhange in New York

By John Bowker

ST PETERSBURG, Russia (Reuters) - Russian internet firms are winning the capital of foreign investors due to their ability to bypass country-specific risks while attracting users and advertising revenue.

The two most successful Russian stock-market floats of the past twelve months have been web-based firms, their fortunes contrasting with a cluster of private issuers that have tried and failed to access capital markets.

Russian search engine Yandex raised $1.4 billion on New York's Nasdaq stock exchange in May, six months after the internet holding company Mail.ru raised around $1 billion in London.

Shares in both firms soared on debut as investors ignored long-held Russia concerns such as corruption and poor treatment of minority shareholders to gain exposure to a previously untapped sector.

"If you are selling to the government, or another company (in Russia) you may have to pay a bribe. Selling directly to the consumer via the internet means there is no gatekeeper. This is key for investors," said Esther Dyson, a U.S. emerging markets investor who was an early backer of Yandex.

Yandex CEO Arkady Volozh said investor enthusiasm could also be put down to the novelty value of a Russian internet success story following a decade of quiet development.

"Russia is just appearing on the radar. When people meet us at international conferences they treat us just like a start-up, but we are a mature company," he told Reuters on the sidelines of the St Petersburg International Economic Forum, Russia's answer to Davos.

"In the last decade we (Russia) have built a software industry and a new internal internet market that is big enough to support local commerce," he added.

NEW ECONOMY

Russia's gadget-loving President Dmitry Medvedev has put the tech sector at the heart of his plans to modernize the economy and reduce its dependency on oil and gas, a project he hopes will also convince top Russian scientists and entrepreneurs to remain in the country.

He told a panel session on Friday that he backed the industry despite concerns about cyber security -- a reference to when hacker attacks temporarily closed down Russia's most popular blog site earlier this year.

Mail.ru Chief Executive Dmitry Grishin said the business model of Russian social networking firms is similar to that in developed economies, where advertisers are spending more capital online to target individual preferences displayed on social networking sites.

But he added that relatively low penetration of the internet in Russia indicated a higher growth potential.

"We have around 50-60 million users, but we have a big opportunity to double that over the next few years. There are around 300 million Russian speakers," he said.

"We are working in a pure, new economy ... It is a business that is not built on oil, gas and natural resources. The only key assets for us are smart young people who are our employees," he added.

(Reporting by John Bowker, Editing by Douglas Busvine/Ruth Pitchford)

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