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Russia’s Detsky Mir shares slump after privatization plan agreed

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MOSCOW — Shares in Russia’s largest children’s toy retailer Detsky Mir slumped on Friday after its shareholders agreed to restructure the business in the form of a spin-off that could pave the way for the company to become private.

Detsky Mir, whose free float exceeds 50% and counts a host of Western funds and banks among its shareholders, in November said it was planning a gradual transformation into a private company, citing the need to maintain steady business operations.

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Elements of the company’s restructuring could serve as a template for other Russian firms with a large portion of foreign investors, as Western sanctions and Russian counter-measures have effectively frozen access to certain holdings.

A number of Detsky Mir’s investors are facing challenges in voting at shareholder meetings, due to Western regulators’ negative view of the Russian stock market, the company has said.

Turnout at the restructuring vote was 54.85%, above the more than 50% quorum required, with 97.91% of votes cast in favor.

The company’s Moscow-listed shares were down as much as 10% at one point. By 1117 GMT, they were down 4.2% at 64.3 roubles, underperforming the wider market.

The move still faces hurdles, such as winning approval from the Russian authorities. Detsky Mir shares fell to their lowest in months when the plan was announced last month.

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The company is strong enough that long-term investors could have an incentive to remain, BCS Express analysts said, but this is an individual decision since selling one’s stake later on would be difficult.

“Shareholders of Detsky Mir, who did not participate in voting on the reorganization or voted ‘against’, will be entitled to demand redemption of their shares at a price of 71.50 roubles ($0.9962) per ordinary share,” Detsky Mir said.

Funds received during the redemption process will be transferred to C-type accounts opened with Russian banks, Detsky Mir said.

Funds of investors from so-called “unfriendly” countries on C-type accounts at Russia’s National Settlement (NSD) are being kept there until after sanctions are lifted.

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The company is aiming to become more flexible in a difficult environment, according to Tinkoff Investments analysts, with sanctions putting pressure on the economy, incomes falling and consumers spending less.

Detsky Mir, a 75-year-old brand set up during the Soviet Union, shunned a London listing to stage a market debut on Moscow Exchange in February 2017, raising an equivalent of around $355 million at the time.

The reorganization will be completed about six months after its approval, Detsky Mir said. It then plans to offer shareholders to transfer their holdings for shares in a different non-public entity and then make a tender offer to all shareholders to sell their shares. ($1 = 71.7750 roubles) (Reporting by Alexander Marrow and Olga Popova; editing by David Evans and Tomasz Janowski)

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