Property wizard seeks backers for a Russian flutter

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The Independent Online
Bermuda-registered, AIM-listed, backed by property industry luminary Elliott Bernerd and planning to set up an on-line lottery in 10 Russian cities, the stock market's latest flotation candidate yesterday secured its place at the top of a list of ambitious and unusual issues. Alea, named after the Latin word for a game of chance, is hoping for first dealings on the Alternative Investment Market at the beginning of next month.

Alea will be the route for UK investors into the Russian national lottery, a joint venture between Alea (60 per cent) and its Russian partner, the Russian Committee for the Protection of Peace (40 per cent). Raising pounds 32.4m in new money, the company has plans for lotteries around the emerging world, including the former Soviet Union, South America and Africa.

The company is the latest venture from Elliott Bernerd, chairman of Chelsfield, Britain's ninth largest quoted property company, but a serious investor on his own account in Russia, which is seen by many as the dangerous but potentially lucrative Wild West of the capitalist world. Other well-known entrepreneurs taking a bet on the region include George Walker, who is currently introducing Russians to the attractions of horse racing.

Through a private company, Halstead Services, Mr Bernerd has invested in recent years in a string of forestry, oil, money market trading and gold businesses in the former Soviet Union and last year he appointed the former Lonrho main board director and Union International chief executive Terry Robinson to run his embryonic Russian empire.

According to Mr Robinson, there is enormous untapped demand for a Camelot- style lottery in Russia. Recent research showed that 64 per cent of Russians are aware of lotteries, many more than for any other wagering activity. Some 53 per cent like a flutter, a little under half have already gambled on Russia's off-line lotteries, such as scratchcards, and 70 per cent say the chance of winning the equivalent of $1m would tempt them to have a go.

Mr Robinson and his former finance director at Union, Paul Taylor, bring with them their experience of dealing in emerging markets such as Africa and Russia. For that, Halstead will retain a 30 per cent stake in Alea following the proposed share placing. Essnet, which operates lotteries in Australia, the Netherlands, Germany and Latvia provides the operational know-how and takes a 20 per cent stake in the company.

New investors, who will subscribe to a package of loan notes and equity, will hold 50 per cent of the shares in return for providing all the pounds 32.4m that will fund the new venture. There are 300,000 units on offer at pounds 108, each of which comprises one $100 loan note and 133 shares worth an initial 33p.

The complex funding structure is designed to maximise the return to equity shareholders, with the loan note element of the package paid off as quickly as possible (the target is 18 months).

At the placing price, Alea will be valued at pounds 26.3m and the loan notes and shares will trade separately on AIM.

Investment column, page 23