Promote Russian IPOs
Russia Blog contributor Vladimir Kuznetsov, director of equity finance at the Finam Investment Company, sends us his observations from the 2nd Annual Joint Capital Markets Conference held yesterday in Moscow.
Yesterday the MICEX exchange hosted a conference in Moscow - 2nd Joint Capital Markets Conference titled "IPO and Beyond: New Capital Market Products on the Horizon" organized by the London Stock Exchange and Russias MICEX Stock Exchange. You may look at the list of participants at this link. I would like to briefly summarize some of the speakers' remarks. The conference was heavily attended, with about 300 people present.
At the beginning of his remarks, MICEX CEO Alexei Rybnikov stressed that we are currently witnessing explosive growth in the Russian stock market, i.e.
- the general population is starting to participate in stock market activities
- growth in the number of IPOs
- growth in the number of traded securities
- changes in financial infrastructure
Click on the extended post to read more.
The Chairman of MICEX, Alexander Potemkin, stressed the following ideas for further development of the MICEX:
- expanding the base of support for the exchange by attracting SMEs and providing these companies more possibilities for active trading
- further development of new initiatives (such as a junior market)
- gradual transformation of the MICEX into a kind of information bureau for stock issuers
- further development of supporting infrastructure for the exchange
Mr. Gibson-Smith also noticed the healthy diversification of Russian securities markets in the past year -- a notable shift from IPOs in natural resources to consumer services, retail, manufacturing and technology. There are 13 more IPOs from Russian companies expected in 2007.
Closely related to LSE Chairman's remarks was the speech from Anthony Russell Brenton, Her Majesty Queen Elizabeth's Ambassador to Moscow. He was exhuberant and declared himself to be "impressed by the dynamism of the fast growing financial sector in Russia".
Chart showing growth of IPOs in Russia since the 1990s (Source: Kommersant)
What I liked the most about Mr. Brenton's speech was his use of superlatives, such as the "speed and enthusiasm with which the U.K. adapted to globalization" -- that is, U.K. regulators are very efficient in their decision making regarding listing requirements for the LSE. Shared corporate governance standards is one of the things that both countries benefit from in LSE/MICEX cooperation. Another interesting remark the Ambassador made was about the influence of U.K.-based financial services provided for Russians -- in this way, the Russian financial sector will follow the British one.
Oleg Vyugin, director of Russia's Federal Financial Markets Service
(Photo by: The St. Petersburg Times)
Here are some interesting FFMS statistics from 2006 that Mr. Vyugin provided to the audience:
- Six companies offered common stock;
- Seven companies made dual listings;
- Two companies used Depositary Receipts;
- Three companies made "exotic listings" through SPVs.
Mr. Vyugin also made some meaningful disclosures: last year saw the advent of institutional investors in Russia, primarily through the creation of new investment funds -- there are 642 active funds operating in Russia now. This represents 50% growth over last year. According to Mr. Vyugin, this is an extremely important fact -- the national stock market development mostly relies on the status and condition of institutional investors. There are three different types of investors in Russia, and out of these three major groups, 35% invest in DR, and 65% in common stock. However, very few Russian institutional investors actually do both types of investments.
The liquidity of the Russian stock market is very high due to activities of institutional investors. Mr. Vyugin pointed to the "reasonable" situation in the Russian stock market: the issuers have access both to Western and domestic investors. This leads to healthy competition and greater possibilities for both parties to receive advantageous terms. He summarized that there is a sound institutional base for the development of the Russian stock market.
Russians account for a large percentage of new real estate investment in London
More interesting facts were revealed in the remarks of Alderman John Stuttard, the Lord Mayor of the City of London. I guess 99% of the audience had the first chance to see Alderman live. He started his speech with some amusing remarks about his tour of the Kremlin on Sunday, where he found a fine collection of Elizabethan silver; at the same time he noted that his badge (an impressive metal thing hanging around his neck) is also 400 year-old silver of Russian origin. Mr. Stuttard then introduced a wave of
- In 2006, a total of 367 companies were listed in London exchanges, raising Â£29 billion;
- There are 242 foreign banks in London
- Half of the real estate buyers in London are Russians
- There are 242,000 executives in the City of London that hold non-UK passports
The 2002 Sarbanes Oxley Act in America had a major impact on international equity markets
A substantial portion of Alderman's remarks were related to regulatory issues. He reminded the audience about the Sarbanes-Oxley Act in America, mentioning that the U.S. Securities and Exchange Commission (SEC) is not politically independent as regulatory authority. "Light type of regulation is applied in the U.K. But this is not soft touch -- a lot of companies are fined almost every week for violations".
Mr. Ulukaev, First Deputy Chairman of Russia's Central Bank, noted that 2006 saw a sharp increase of private capital inflow into Russia; with $ 41 billion in 2006, as compared to zero net inflow of capital in 2005. This was due to the fact that there is a good investor appetite for emerging markets and Russia offers a good return on capital investment. In 2006 the majority of capital inflow was associated with loans, but in 2007 Mr. Ulukaev predicts that these will primarily consist of IPOs and private investments. According to his estimate, just two sectors of the Russian economy (banking and energy) could attract up to $35 billion.
Tom Troubridge, Chairman of the Listing Authority Advisory Committee (and also an employee of Price Waterhouse Coopers) delivered an interesting presentation as well. I will present here just one interesting line from it: "A la carte menu approach to regulation".
In my opinion, that is exactly what we need here in Russia.
The views expressed in this post are the personal opinions of Vladimir Kuznetsov, and do not necessarily reflect the views of the Finam Investment Company. You can read the original post at Mr. Kuznetsov's blog, Equity Financing in Russia.