RUSSIAN IPOs – WHAT’s AHEAD – LSE and MICEX INTEGRATED REASONING

THIS POST WAS ORIGINALLY PUBLISHED APRIL 02, 2007

 RUSSIAN IPOs – WHAT’s AHEAD – LSE and MICEX INTEGRATED REASONING

Today MICEX hosted a conference in Moscow - 2nd Joint Capital Markets Conference "IPO and Beyond. New Capital Market Products on the horizon" organized by the London Stock Exchange and MICEX Stock Exchange. You may look at the list of participants and speakers at this link, and here I would like to summarize some of the reports. BTW, its is heavily attended – about 300 people are present.

At the beginning MICEX CEO Mr. Rybnikov stressed that currently we are witnessing explosive growth of the Russian stock market, i.e.
- population is starting to participate in stock market activities
- growth of numbers of IPOs
- growth of number of traded securities
- changes in infrastructure

MICEX Chairman, Mr. Potemkin, stressed the following ideas for the development of MICEX:
- expansion of the base of the exchange by means of attraction of SMEs and provision for these companies of possibilities for active trading
- further development of new initiatives (like junior market)
- gradual transformation of MICEX into some sort of information bureau for the issuers
- further development of infrastructure.

Mr. Gibson-Smith, the Chairman of the LSE elaborated on the development of Russia-UK capital markets relationship in a rapidly changing world. He pointed to the keen interest of investors to the Russian issuers (20 of them in AIM only). Mr. Gibson-Smith used a nice language about teaching the Russian companies “to raise capital on the right terms”. I guess, that means the scope of MICEX and LSE cooperation. He also noticed the changes in the Russian securities markets – a shift from natural resources to consumer sector, retail, machinery and technology.
Closely related to LSE’s Chairman was the speech by Antony Brenton, HM Ambassador to Moscow. He was rather emotional and noted that he “is impressed by the dynamism of the fast growing financial sector in Russia”. There are 13 more IPOs of Russian companies expected in 2007. What I liked a lot – the use of superlatives, like notable “speed and enthusiasm how the U.K. adapted to globalization” – that is in the sense that U.K. regulators were very efficient with their decisions on listing requirements for LSE. Sharing the corporate governance standards is one of the things that both countries benefit from LSE/MICEX cooperation. Interesting remark was regarding the influence of the U.K. financial services provided for the Russians – in this way the Russian financial sector will follow the British one.

Sure enough, one of the key note speakers was Mr. Vyugin, Head of Federal Financial Markets Service (FFMS). Some statistics for 2006:
- 6 companies offered common stock;
- 7 companies made dual listings;
- 2 companies used Depositary Receipts;
- 3 companies made “exotic listings” – through SPVs.
Mr. Vyugin made some meaningful disclosures: last year was the advent of institutional investors in Russia, primarily of different funds – there are 642 active funds operating in Russia now. This is 50% growth over the year. According to Mr. Vyugin that 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: (i) 35% invest in DR; (ii) 65% - in common stock; (iii) very few do both. 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. That leads to good competitiveness and possibilities to get advantageous deals. He summarized that there is a good institutional base for the development of the Russian stock market.
Really cognitive were 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 a live Alderman. He started with some amusing remarks about his Sunday’s tour of the Kremlin where he found some good Elizabethan silver collection; at the same time he noted that his badge (an impressive metal thing on his neck) is also 400 years old silver of Russian origin. A new wave of perceptive statistic was produced:
- in 2006 367 companies were listed in London that raised £29 billion;
- there are 242 foreign banks in London
- 50% real estate buyers in London are Russians- there are 242,000 executives in the City that are non-UK passport holders
Substantial part of Alderman’s remarks was related to regulatory issues. He reminded about well-known Sarbanes-Oxley Act, mentioning that US 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, Central Bank, among other things noted that 2006 saw a very fast inflow of private capital to Russia; with $ 41 billion in 2006, as compared to ZERO in 2005. This is due to the fact that there is a good investor appetite and a good offer for that capital. While in 2006 the majority of the inflow was associated with loans, Mr. Ulukaev predicts that in 2007 this will be structured with IPOs and private placements. According to his estimates only two sectors (banking and energy) may attract up to $ 35 billion.

An interesting presentation was made by Tom Troubridge, Chairman, Listing Authority Advisory Committee (also an employee of PWC). Just one note from it:
“A la carte menu approach to regulation”.

That, what I think we need here in Russia.