Russian Helicopters has postponed its $500-million (U.S.) London-Moscow listing after the company was unable to convince investors that the four-year-old company should be valued at over $2-billion.
The decision comes as a blow to the Russian state, which is in the midst of rolling out a $32-billion privatization program and has made a big push to revive the country's crippled aerospace and defence industry.
Announcing the decision, Oboronprom - the vehicle through which the Russian government controls the company - said that it believed people needed more time to consider the investment.
"We are ... very conscious of the value of our asset," said Andrei Reus, chief executive of Oboronprom.
"Based on constructive conversations we have held with potential investors over the past few weeks, we believe market participants will benefit from more time to reflect upon the true value and growth potential of our business."
A person with knowledge of the offering admitted that there had been "a mismatch on valuation" in regards to how highly Russian Helicopters valued itself and what investors were willing to pay for it.
The company was also unable to secure funding from investors in the defence industries, he said. Instead, Russian Helicopters had to rely on interest from emerging markets-focused investors, who have been able to pick and choose from close to a dozen Russian IPOs this year and have begun to look for deals at a discount.
Of the 10 companies that have tried to float in London since January, only four have succeeded. One, Hydraulic Machines & Systems, a pump-maker, was forced to lower its price range, while a second, real estate developer Etalon, priced at the very bottom of its targeted range.
People working on offerings said investors had learnt to distinguish the wheat from the chaff. "One thing I've learnt is that the market is never stupid," said one senior western banker in Moscow.
While the deal represented a rare opportunity for foreign investors to invest in a strategic government sector, several analysts had expressed concerns about the company's limited record. The state only began consolidating the helicopter sector in 2007, and was still continuing the process at the end of last year.
"[Russian Helicopters]is still a relatively new business and not a business that has been looked at by capital markets previously," the person with knowledge of the offering said. "And [for investors]there's still an element of 'let's wait and see how the group's consolidation affects its performance.'"
The IPO was seen to be crucial for the company to modernize Soviet-era factories and increase production, which fell dramatically in the early 1990s.
Though the Russian state has promised to invest $723-billion in the defence industry by 2020 in an attempt to revive the sector, President Dmitry Medvedev lashed out at industry officials in a televised meeting on Tuesday and blamed them for not fulfilling major arms contracts.
"The work is going very poorly and very slowly … I want to hear from everyone here today why this happened … who was punished for this and how," the president said.