“The influence of private investors is a double-edged sword”

The general director of TKB Investment Partners told Kommersant about changes in the primary equity capital market with the departure of foreign investment banks, the decline in the quality of corporate governance and the reasons for the low activity of portfolio managers. Dmitry Timofeev.

— How has your approach to IPOs changed over the past year and a half?

— If previously we almost did not participate in local IPOs, now we are looking at this segment with interest. First of all, because the Russian stock market has become very narrow at the moment. Most of the turnover is provided by retail investors, who have a very specific understanding of the value of companies, based on binary logic – “I believe / I don’t believe.” In addition, there are very few instruments in the Russian Federation compared to developed markets. Managers are in search of new ideas and portfolio diversification.

— How did the actual isolation of the Russian stock market affect placements?

— It influenced, for example, the quality of analytics, initiating coverage (detailed report from an investment bank.— “Kommersant”) including. If earlier analytics from global investment houses – JP Morgan, Goldman Sachs, BaML, Credit Suisse – acted as a kind of benchmark, now only the three largest Russian banks have more or less competitive products. Therefore, there remains a shortage of information and qualitative opinions on the basis of which one could assess the attractiveness of the issuer.

The amount of information received is also very scarce. Often there are no financial models, no business plans – very little digitized data, most of the information is verbal. As a major player, it is very important for us to understand the fundamental value of the company before listing, to see development plans in numbers, the ownership structure, in order to determine whether future shareholders are in the same boat as current ones.

Some placements pass with a “D” in terms of transparency, while others pass with a “F”, but there are still more “B” placements. Why such low ratings? Due to the low quality of analytics, the lack of detailed DCF models with forecast values ​​of the main key indicators and mention of the main risks, road shows are not always even held. The rather short application collection periods do not contribute to transparency. Despite this, in the market as a whole, I would rate the transparency of placements as acceptable.

— Is there a deterioration in corporate ethics during IPOs and SPOs?

— We observe, for example, situations when, during an SPO, investors are offered various types of options that increase their attractiveness. But current shareholders do not always receive them. If this practice becomes widespread, it will create risks for participants in other IPOs. After all, now at initial public offerings, as a rule, small blocks of shares are offered, and the management and shareholders of such companies do not exclude the possibility that an SPO will be carried out in the future. In general, I believe that during an IPO, a company should clearly outline plans for future placements so that investors can adequately assess the risks, at least from the point of view of dilution of shares.

There were cases when, to put it mildly, completely incomprehensible issuers floated, strange mechanisms of both pre-marketing and book formation, after which companies were floated. At the same time, the companies were valued at impressive amounts, tens of billions of rubles. The marketability of such placements is questionable, since the shares were offered to the companies’ client base. Moreover, these people may have had no experience investing in the market at all before.

How can one say in such conditions that the company received a fair market valuation? If this practice becomes widespread, the stock market will cease to fulfill its main mission – attracting financing for companies and ensuring fair and transparent pricing. This may have a negative impact on the perception of placements and undermine confidence in exchange-traded investment instruments.

— Did the dominance of private investors somehow affect the situation?

— The influence of private investors is a double-edged sword. On the one hand, it’s great when retail investors participate in placements; it popularizes the stock market and increases liquidity. But retail investors greatly distort the valuation of the shares of the company being placed, which ultimately turns trading into gambling.— “Kommersant”).

The abundance of retail investors and massive demand on their part greatly relaxes some organizers – why bother if everything is already sold out? On the other hand, the promoters, as well as shareholders of some issuers, seem to me to understand the importance of having institutional investors on the books of participants. After all, the participation of professional players in placements is a kind of anchor, a guideline.

— How has communication with placement organizers and issuers improved or worsened?

— The situation with communications differs from placement to placement. If we are talking about cases where large banks are the organizers, they try to adhere to the best global practices. They organize real road shows – they bring company management and shareholders to meetings. In such cases, we have more confidence in the placement price range determined by the organizers, since we have an idea of ​​​​the professionalism of the analytical teams of these banks. Also, large banks can adequately form a book in terms of determining the placement price in the designated range.

— Why don’t portfolio managers participate in all placements?

— We are very selective about IPOs.

First, we look for fundamentally strong stories, betting not on speculation, but on the fact that the company can grow organically in the medium to long term in terms of free cash flow and a high-quality balance sheet. Another criterion is the industry where the issuer does business—in the current conditions one has to be selective.

Secondly, we pay attention to the potential availability of shares for purchase as part of our institutional portfolios – these are non-state pension funds, insurance companies, endowment funds, for which there is strict regulation in terms of regulatory restrictions. That is, the quotation sheet is important. If we talk about the possibility of purchasing securities in the portfolios of non-state pension funds, we also assess the likelihood of inclusion of the issuer’s shares in the Moscow Exchange index. In general, these are certain requirements for the corporate governance of the issuer.

Thirdly, we pay attention to how the company is valued at the current placement. Preference is given to those who offer accommodation at a reasonable discount to similar companies. If there are no discounts, then why buy securities whose analogues are trading the same or even cheaper?

Fourthly, we try to assess, to some extent assume the possible structure of the book, how the placement will proceed, who will buy the shares, what number of retail investors there will be in total, what preference the current shareholder has for the quality of the book. When the book consists only of retail investors, it is better not to interfere.

Fifthly, we evaluate the quality of the placement organization, communicate with management, and ideally with shareholders. And, sixthly, pay attention to what scheme the placement follows: cash-in or cash-out. We look more positively at situations when a company attracts new money for development, but this is not an unambiguous criterion, since both options have pros and cons.

These are the main criteria. In fact, there are quite a lot of them. That’s why we don’t participate in every second IPO.

— What does a manager lack in today’s market to participate more actively in placements?

— Institutional managers are constrained by regulatory restrictions on client portfolios. Secondly, a manager whose volume of assets under management is in the region of 1 trillion rubles is sometimes faced with the fact that the IPO volume is too small in monetary terms. Thirdly, blocks of shares in the amount of several percent of the authorized capital are now being offered. To enter the Moscow Exchange index, you need much higher free-float indicators, this time. And two – we do not always agree, when investing large sums, to be, in fact, a powerless minority shareholder.

It would be much more interesting to see an offer for IPO packages of 20–30%. The logic is simple: if a group of institutional investors has at least a blocking stake, they feel much more protected, can positively influence corporate governance and contribute to the development of the company. But, as far as I understand, not all shareholders are ready to sell such stakes.

There is also a very short supply of mid-cap companies worth hundreds of billions of rubles. If such companies enter the market, and even with a large share of capital, the participation of institutional investors in placements will increase, the participation of retail investors will decrease, and more adequate pricing will develop.

— Issuers from which sectors would you be interested in?

— We do not have any clear preferences for issuers’ business sectors. There is rather a skeptical attitude towards retail and other industries where the added value is not so high. What there is a conditional predisposition to is towards industries that in the near future will act as beneficiaries of the import substitution process, industries with high stable margins, industries that are actively developing.

Interview conducted by Vitaly Gaidaev