What could stimulate the growth in the number of IPOs on Russian stock exchanges
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A sharp decrease in the activity of issuers in the placement of shares in Russia after the outbreak of hostilities in Ukraine caused criticism from Russian President Vladimir Putin. Experts and participants note the objectivity of the problems caused by the withdrawal of non-residents from the auction and sanctions risks. They acknowledge that there are ways to improve the situation, including through changes in regulation and through government support for investors.
At a meeting of the Council for Strategic Development and National Projects on August 22, Vladimir Putin stressed that “Russian companies practically do not place shares on the domestic stock market and it is necessary to step up efforts and achieve concrete, tangible results.” He noted that since the beginning of the year, only two IPOs have taken place, and since the beginning of 2022, in general, only Whoosh, Genetico and CarMoney have placed shares. The President added that the Central Bank and the government are already “working in this area.”
In the two years before the outbreak of hostilities, despite the pandemic, Russian companies were actively pursuing both IPOs and SPOs.
According to Kommersant’s estimates, based on Refinitiv data, 42 share placements worth $15.3 billion took place in 2020-2021.
The largest IPOs of Russian companies have traditionally been carried out on Russian and foreign exchanges, the latter being considered as the main source of investors. For example, in November 2020, Ozon placed ADRs on the NASDAQ Global Select Market and the Moscow Exchange, the former being the main market. In April 2021, an IPO was held by Fix Price, which placed securities for $1.77 billion on the London Stock Exchange with a secondary listing on the Moscow Stock Exchange.
Experts interviewed by Kommersant confirmed the existence of the problem. Foreign investors, who were the main buyers of securities during the IPO, left the Russian market, and “the appetite for new placements has decreased,” says Arikacapital strategist Sergey Suverov.
The main condition for the resumption of the IPO will be the restoration of market volumes – issuers need confidence that there are enough investors and funds, says NAUFOR President Alexei Timofeev.
He emphasizes that in order to intensify the IPO, “every effort must be made to ensure the activity of domestic retail and institutional investors and attract friendly non-residents.”
A negative role was also played by the lack of reporting and general statistics, the volume of which in the Russian Federation has declined sharply. Almost any IPO or SPO requires issuer and market analysis, analysts say. In addition, Evgeny Kalyanov, an expert on the stock market at BCS Mir Investments, believes that “in the current geopolitical conditions, the management of most Russian companies is afraid to bring their businesses to IPO, fearing to attract excessive attention and get into Western sanctions lists.”
To solve the problem, it is necessary to “create a guaranteed demand for the newly issued share capital,” notes Andrey Barkhota, an independent financial analyst. For example, he explains that when acquiring shares of Russian issuers by investment and pension funds, banking or insurance groups, the risk weight and burden on capital would be identical or even lower compared to buying bonds of the same issuer or issuing an equivalent corporate loan to it. This, according to the analyst, could interest investors in large volumes of equity exchange placement.
It is also possible to stimulate public offerings by simplifying and speeding up procedures, providing incentives for taxation of dividends and by exempting investors from paying personal income tax when selling shares acquired during an IPO, Evgeny Shatov, partner at Capital Lab, believes.
The number of IPOs on the Russian market will in any case increase, says Anastasia Puzanova, head of projects at the corporate finance department at Tsifra Broker. According to Mr. Suverov, about ten placements can take place in the second half of the year and in 2024. Evgeny Shatov talks about ten placements in 2023 in total. However, the expert clarifies, the average volume of placements will decrease and will amount to about 3-5 billion rubles.
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