Chocolate Shares Fail to Tempt Investors

Ravil Baitarshinov plunked down 200,000 rubles for 10 shares in the Red October chocolate factory Monday for all the right reasons.


Or at least for all the reasons which the directors of the venerable chocolate factory and their Western advisers swore would bring small investors flocking to Red October's 70 billion ruble ($21.37 million), two-week public issue that began Monday.


"These shares are based on real production -- this is no pyramid, like MMM," said Baitarshinov, 34, referring to the troubled MMM joint-stock company. "You can see its products on every shelf -- they're very tasty."


Baitarshinov cited other areas where Red October stands out: The company has disclosed ample financial information, is registering shares with an outside custodian to guarantee ownership and has defined plans to invest in new equipment and packaging.


But while brokers and Western advisers tout Red October as a welcome relief from the countless shadowy companies that promise quick, sky-high returns but offer few specifics about their activities, it may not be the kind of relief that Russian investors are seeking.


At Grant Financial Center, one of 15 Moscow locations where people can apply to buy shares, Baitarshinov was the lone customer in a sea of eager journalists who had anticipated long lines and interviews with pensioner-investors.


At the Troika-Dialog brokerage, which had just one buyer for Red October shares all day, broker Mikhail Zakharov called the stock "a reliable long-term investment" but said some investors were staying away because it is "not as profitable as some."


But the Olma brokerage in TsUM department store was doing a brisker trade, with 12 relatively large investors putting in for a total of 13,600 shares. Red October is floating a total of 5.5 million shares, 2 million of which have been set aside for a strategic foreign investor.


Olma consultant Galina Kulikova said the shares were popular because they represent a product everyone is familiar with, from the factory's beloved Mishka Kosilapy, or bowlegged bear cub, chocolates to its Lobster Tail hard candies.


"I think people just traditionally like sweets," said Kulikova. "Frankly, I think foreign chocolates are already in decline. My kids are already asking for our own chocolates."


Grant had seen over 20 investors by mid-afternoon, said registrar Yekaterina Stepanova, including elderly people buying the minimum of five shares -- "people who are putting in all they have" -- investors motivated by "Soviet patriotism" and pride in domestic industry and foreigners "buying shares just out of curiosity."


Would-be investors pay in advance for shares, which they will receive on a first-come, first-served basis. Those who place their orders too late will get their money back, but only in a month.


Some people walked away disgruntled upon learning the shares cost 20,000 rubles each: 20 times the face value of 1,000 rubles. Russian shares usually trade at prices far above their somewhat arbitrary face values.


Lyudmila Bochkova, a Red October worker who mans the company's information booth at the riverside near the Kremlin, tried to convince Yury, a lawyer, that the price was reasonable: "If you could see how we are working day and night -- and the chocolates are so wonderful."


"In the street I don't see wonderful," said Yury. "What I see is the stores, and on the shelves are Snickers and Mars."


In TsUM, another unconvinced investor told a reporter, "Oil. Buy shares in oil. That's profitable."