“Now the focus is on the development of the local capital market”

About how the market for investment banking services (IB) is changing against the backdrop of sanctions and the departure of foreign players, Kommersant was told by the deputy chairman of the board of Sberbank Anatoly Popov.

— How did investment banks survive the acute period of market contraction in the first half of the year?

— As new restrictions came into force, we worked on adapting our products, adjusting them in order to be able to continue to offer customers.

– Is it possible to estimate how many transactions that are ready for implementation fell through?

— This year promised to be active in all directions, but due to the fact that one can definitely talk about a deal only in the immediate vicinity of its closing, it is difficult to estimate how many did not take place. It can be said that according to the expectations at the beginning of the year, we were guided by a no less successful year than the last one.

— Which areas have suffered the most, and which ones have suffered the least?

— The IB market is very volatile and quickly reacts to any external negative and positive factors, shrinking or recovering. A good example is the situation with the pandemic in 2020-2021, when after the silence in the first half of 2020, the IB markets showed record growth in the fall and grew throughout 2021. Of course, for the first few months of 2022, the market was at a standstill. But due to the departure of Western companies, we were able to actively engage in financing and advising on M&A transactions almost immediately.

Since May, faster than expected, the bond market (DCM) began to recover, and its activity is approaching the level of previous years. We believe that the debt capital market will return to 2021 levels or even exceed them as early as 2023. This is evidenced by the current activity of issuers: the volume of placements in July-September exceeds the level of 2021. Of the individual areas of development, one can single out, firstly, the increased interest in the local market on the part of exporters, who previously traditionally attracted financing from abroad. Secondly, issuance of replacement bonds in exchange for Eurobonds. Thirdly, the formation of a new segment of the local market in yuan.

— The external capital market has always played an important role in the investment activity of Russian companies due to its large capacity and lower cost of financing than within the country. So far, it has never closed completely. How are things now? Can we expect a reorientation of placements, for example, from West to East?

— While Western markets are closed. Reorientation to the Middle East, Asian markets or the CIS is only being discussed. The fact is that these markets have less liquidity relative to Russian or regulatory restrictions. Now the focus is on the development of the local capital market.

— Can local currency bonds become a replacement for Eurobonds? At the expense of what currencies will the market develop?

— So far, we see that the capacity of the local market is enough to cover the financing needs of all Russian issuers, including those that used to be funded through Eurobonds. The currencies of unfriendly countries are no longer safe. We do not see great prospects for placements in them, but individual transactions are still possible.

The development potential of the market for local currency bonds is mainly associated with the yuan, where several deals were closed and the future pipeline was formed. In placements in Chinese currency, exporters are mainly interested, whose revenue is tied to hard currencies or the same yuan. So far, the capacity in yuan is enough to implement regular large transactions from 4 billion CNY.

— What are the prospects for the equity capital market? Can IPOs start before the end of the year or is this a prospect for the next few years? What does it depend on?

— Prospects for the equity capital market are very high. We see the Russian IPO market picking up and are working with several companies that plan to make IPOs as early as 2022.

The state of the market, from our point of view, allows us to count on the success of debut transactions, while we estimate the potential in the medium term many times higher due to significant pent-up demand from our clients. So, at the beginning of 2022, we communicated with more than 50 issuers who planned to enter the equity capital markets within 1–1.5 years. Realization of this pent-up demand is possible as early as next year, if market conditions remain favorable and debut placements are successful.

The key changes are, of course, the departure of institutional foreign investors, who will be replaced by local ones.

— How prepared are local players for new placements? Who is more interested – institutional or private investors?

— The local stock market is recovering. We see an increase in trading volume, an increase in interest in new placements from both retail and institutional investors who are waiting for new opportunities. In terms of appetite today, institutional investors are a little more cautious, but are actively exploring promising opportunities. Retail investors make decisions more impulsively and actively, and we expect them to dominate the first transactions, but in the future, demand will be balanced.

— How many placements can be satisfied by local investors right now? What is holding back the market – a large amount of frozen assets, the absence of external investors, uncertainty in the development of the economy, inflated appetites of issuers?

– The first placements that we are discussing now are 3-10 billion rubles. In case of positive results of the first transactions, we assume an increase in volumes up to 15-20 billion rubles. for a deal. Restraining factors for investors are the general uncertainty regarding the further development of the economy and the market and, in connection with this, a short planning horizon. Freezing part of the assets of local investors also, of course, limits their appetite and the amount of funds for new investments. But we expect a gradual solution of infrastructure problems.

— How long will it take for the volume of share placements to return to the level of 2021?

Everything will depend on how the year ends. If we see a stabilization of the geopolitical situation, economic recovery and a decrease in inflation, this will contribute to the influx of an increasing number of investors into the market, including large institutional ones.

– Will additional measures be required from the financial authorities? What incentives could support interest in an IPO?

– After the departure of Western investors, the market is limited. It is necessary to develop local investment demand, stimulate the development of the stock market, return its attractiveness as one of the main directions for the transformation of free cash into the country’s economy.

For example, we see potential in the development of a reduced pool of institutional investors at the expense of large Russian financial and industrial holdings and wealthy private investors. The influx of new investors will be facilitated by the development of market infrastructure, the absence of sharp fluctuations in quotations, increased predictability and transparency of companies’ activities, then the market will develop.

Interviewed by Vitaly Gaidaev