“Discussing valuation with shareholders is always an emotional process”

The deputy chairman of the board of Sberbank told Kommersant about changes in the Russian IPO market against the backdrop of the departure of foreign investors and investment banks, the peculiarities of working with private investors and prospects for 2024 Anatoly Popov.

— What expectations did you have for the number of IPO and SPO transactions for this year? How much has the number of mandates increased to date?

— At the beginning of 2023, we expected that up to five transactions on the equity capital market could be closed in a year. But in the second half of the year, the number of mandates with an IPO/SPO horizon of 12 months grew to double digits. This happened due to the accelerated pace of economic recovery, as well as the return of dividends to the stock market and a decrease in arbitrage opportunities.

— Did the departure of Western investment banks somehow affect the market for your services? Have their prices, placement costs, or relationships with issuers changed?

— The amount of work and standards have changed slightly. We continue to maintain global standards of quality and protection of our investors during placements. At the same time, in percentage terms, the costs for issuers have even increased, since they require the involvement of more expensive retail channels.

— How have IPO/SPO technologies changed in conditions of an isolated market and a significant number of small private investors?

— Technologies for initial offerings have not changed much – we help new issuers prepare their investment stories and sell them to all types of investors during long-term bookbuilding. However, technologies for conducting secondary offerings (SPOs) have changed dramatically. Previously, the most common were accelerated order book builds with bookbuilding during one evening, when large institutional orders could cover the entire book. We now offer longer SPO periods to suit all types of investors, including retail investors.

— How do investment banks work with private investors?

— The Sberbank group has four retail channels – premium Private Banking, SberFirst, SberPremier with different levels of client income and, as we call it, the mass channel. Each channel has its own approach to work, it is based on customer requests for the depth of marketing materials and customer activity. Our main task is to inform the client about the placement and provide him with analytics in the volume that he is ready to consume and in the format in which he is most comfortable.

— Previously, preference was given primarily to institutional investors when allocation was made. What has now changed in the distribution of shares given the absence of foreign investors?

— In current transactions, on the one hand, we try to maintain a balance and want to ensure liquid trading, and on the other hand, we respect the allocations of institutional investors. Due to the small size of the IPO, we are not ready to allocate 90% to institutional investors, as this carries liquidity risks in secondary trading, but we target about 50% of allocations to professional investors.

— Are issuers ready to regularly communicate with large investors and investment house analysts?

— We are ready and do it regularly. Analysts are the voice of the market, and all major issuers strive to communicate through them.

— Does the greenshoe mechanism (option to maintain the market after an IPO) work under current conditions? If not, why not?

— Yes, it works and is one of two (in addition to lock-up) mechanisms for protecting minority investors in IPOs. Russian legislation allows structuring greenshoe, and it is present in all IPOs, without exception, where Sberbank acts as an organizer.

— Professional investors represented by portfolio managers complain that some placements took place at inflated prices without upside. As a result, after the start of trading, the shares fell. Can the placement organizer influence the initial and final price ranges?

— The placement organizer acts as a conduit between the market and the issuer. We therefore encourage portfolio managers to have an active voice in the process of seeking fair valuation.

— What should be the discount to the fair value of companies at IPO? What is it justified by? How difficult is it to explain this to shareholders?

“You can’t come up with a universal formula.” Valuing a company is a balance sheet; discussing it with shareholders is always an emotional process. But everything can be explained, especially when it is confirmed by market feedback.

— What are the expectations for placements for 2024? How many issuers do you have in your pipeline? From which sectors?

“We think we will see double-digit placements.” The number of issuers in the pipeline exceeds ten. And the best part is that among these issuers there is huge diversification across sectors – IT, finance, FMCG and others.

Interview conducted by Vitaly Gaidaev