Tracking the Russian stock exchange (Photo by: Kommersant)
Here at the Real Russia Project, we want to highlight news from Russia's maturing financial markets. To that end, we have requested that Vladimir F. Kuznetsov, director of equity financing for the Finam Investment Company in Moscow, contribute his insights to Russia Blog. Mr. Kuznetsov has travelled to the U.S. to brief American investors, including a visit to Atlanta, Georgia. Mr. Kuznetsov's blog, Equity Financing in Russia, began as a newsletter for investors and has now grown into a blog. We are pleased to repost his latest article here.
- The Editors
For the last several months we’ve seen a lot of discussion about the newly created alternative investment markets – the RTS START and the MICEX IRK (that stands for Russian “Innovation and Rapidly Growing”) listed companies. Many newsmen like to stress that this is the Russian AIM and try to make a lot of comparisons. However, I would agree with the notion that is spelled out at the Federal Financial Markets Service (FFMS) website : “it is not correct that Russia is establishing the market of AIM type… AIM is different, what we are doing is more close to the stock bonds…what we do is suggest to small young companies that have no history, but have consultants and the right business plan, is to borrow the money from the market in the form of an IPO”.
Click on the extended post to read more.
The Marriott Grand Hotel on Tverskaya in Moscow, site of the Third Russian IPO Congress in 2007
I suggest that we do have our own "Russian AIM WAY”. Now venture companies have a choice of two domestic markets on which to conduct their IPOs. I have already supplied some preliminary information on RTS START, now let me talk a bit on the MICEX IRK. (BTW, those who are interested may visit the upcoming Third Russian IPO Congress at the Marriott Grand Hotel in Moscow on April 13, where you may see all the familiar faces).
The basic idea of the "Russian AIM WAY” is to make it easier and faster for companies to conduct initial public offerings, reducing paperwork and the time required to approve an application. Thus the Russians did not introduce any new fascinating ideas – they just applied the global experience of alternative markets to their own. I think that here in Russia we are now in a similar position that existed in the Nineties in Japan and the RTS START and the MICEX IRK remind me of Mothers and NASDAQ Japan – as the Japanese put it at that time, “apple and orange”.
The general features of the MICEX IRK are still intrinsic for the most markets for alternative investments (TSX, Mothers, KOSDAQ, etc.) – providing an important source of capital for venture companies, young and not-so-young, boosting the profile of firms conducting IPOs – thus increasing the visibility and promotion of their products or services, forming business alliances, and recruiting new staff. Basically IRK is closely affiliated with and is in fact part of MICEX, so, generally speaking, once a company is listed on the IRK, it has all the opportunities and capabilities of MICEX, including utilizing its advanced hardware infrastructure. MICEX is the biggest Russian stock exchange and the access it opens to a pool of investors is tremendous.
Thus, now we have a really outstanding opportunity for small companies to address their specific investors. As of today, eleven listing agents are accredited by MICEX – these are the “Russian NOMADs" who are working with prospective issuers.
The MICEX IRK is an integral part of all five lists and OTC and IPO sectors; one of its distinctive features is that both the issuer and its securities should adhere simultaneously to the requirements of IRK and of the corresponding list. According to the statements of MICEX management, the listing requirements are extremely lax, and provide easy access for small and young companies. It is true that there are:
- no strict requirements regarding the size of the float as a percentage of the shares outstanding
- total cap – from 100 million to 5 billion rubles ($ 3.8 M - $ 190M)
- no requirements for company’s history
- no requirements for IFRS/GAAP audit opinions
Of course, the balance between ease of listing and quality assurance is not forgotten. Once the companies have this easier and faster way to go public, they must also reassure investors that they meet certain standards. Although IRK candidates do not have to meet the comprehensive corporate governance criteria, they:
- should sign an agreement with the registered financial consultant (a sort of NOMAD) and with the market-maker
- present an investment memo and corporate calendar that are signed by the financial consultant. The financial consultant is responsible for the valuation of the company.
MICEX officials currently boast the most comprehensive support for IRK issuers. This includes direct contacts with international investors, assistance in preparation of reports in accordance with international transparency requirements, assistance in the perspective listings outside Russia, and even some high-tech webcasting technologies.
As of today, there are no public announcements about listing on the MICEX IRK, but we know that several companies are in the course of preparing for this.
So, this is the picture right now, and all Russian financial market professionals are watching these developments. What this will be? Japanese way – with Mothers and Hercules? New wonder – “Russian KOSDAQ”? Time will tell.
To read the original blog post by Mr. Kuznetsov at Equity Finance in Russia, click here.
