IXSP- New Russian Exchange is Under Way

THIS POST WAS ORIGINALLY PUBLISHED JULY 26, 2007

IXSP- New Russian Exchange is Under Way

I posted in March this year the announcement by OMX (STO:OMX) of establishment of the IXSP – a new Russian stock exchange that is targeted towards SMEs. It seems that the process is going on. Now the IXSP has its own Web-site – a very simple one, listing major ideas that the promoters are planning to execute.

Speaking of the promoters – they are:
- Stock Exchange Saint-Petersburg (SPBEX), the 3rd largest exchange in Russia.
- OMX - The Nordic Exchange
- RX group of international investors focused on Russia

As the first visible practical step, the IXSP started this week mailing proposals to Russian brokers to sign what is named “Preliminary Agreement” which, according to the mail is the requirement of the Russian Federal Financial Market Services (FFMS) for license application. As the marketing move the mail claims that OMX is already “a member of NASDAQ Group” – I think that is done to attract more brokers as there is no any official NASDAQ-OMX Group sign on respective web-sites. I believe that there is some delay in registration - the IXSP officials earlier announced that they expected to get the FFMS approval by the end of July – the letter asks the brokers to reply by August 7th. Another delay made be the result of difficulties to find a suitable clearing company. This month the press reported that RTS declined the request from IXSP to act as the clearing entity.

The Web-site states among other things that “to prepare for an IPО on IXSP is a fast and cost effective manner unlike on the foreign exchanges”. This is interesting language and I feel that the idea of “fast and cost effective manner” may in some cases lead to not very good results.

Generally speaking the IXSP effort is really good and serve the Russian stock market exceptionally well. But all these activities need to be done in a very cautious way. It had been only about four months since inception of the Closed Joint-Stock Company International Stock Exchange “Saint-Petersburg”. In my understanding it is really tough job to administer all issues in such a short time frame. Of course OMX and NASDAQ may bring a lot of experience, but what about listing agents/NOMADs ? Will Western investors like “fast and cost effective manner unlike on the foreign exchanges” ?

Anyways, everyone is watching the developments and we all hope that they will serve for the better.

Financial Pendulum – Moving to Moscow?

THIS POST WAS ORIGINALLY PUBLISHED JULY 05, 2007

Financial Pendulum – Moving to Moscow?

For the last 6 months we have heard a lot of comments pointing to the fact the Moscow is gradually moving to one of the financial centers of the world. Last week impressive information was released at the annual “Russian Securities” Forum. Just three years ago average daily trading volume on the Russian stock exchanges was about $ 600 million; in 2006 it hiked to $ 2.5 billion; and in Q1 2007 the numbers were about $ 4 billion. A few years ago the trading was evenly spread 50-50 between RTS and MICEX; now MICEX share is 70%. MICEX itself changed drastically in the last years. Here is the chart that represents its structure.

Source: MICEX
According to the exchange’s data more than 270,000 clients are connected to the trading system. MICEX trading complex processes more than 700,000 orders a day and more than 350,000 transactions a day. The number of foreign traders in MICEX increased form 17% in 2006 to current 32%. 

And here is information on the place of the exchange in the world market

 
Source: MICEX


The participants of the Forum noted that the Russian stock market infrastructure is on the verge of drastic changes – these changes have the goal to satisfy the needs of investor community. I guess, the significant statement was made by Konstantin Korishenko, Central Bank Deputy: “The first steps in the post election period would be associated with the changes of the market infrastructure”. Nkolay Egorov, MICEX Vice President, stressed the need for international integration of financial infrastructure.
And as if a visible result of these discussions Hong Kong Exchanges and Clearing Limited (HKG:0388) (HKEx) and MICEX signed a Memorandum of Understanding (MOU) on cooperation and the exchange of information on July 3rd. Some Russian experts view this event as one of the major undertakings in the sense of integration. Now, the Chinese investors have the open road to the Russian market. And the Russian companies are welcome for IPOs in China. This all is extremely interesting in the view of several facts: (a) US markets are still not attractive due to the Sarbanes-Oxley Act; (b) LSE and FSA are tightening the listing rules and some experts note fatigue of LSE of Russian companies; (c) global position of HKEx.
In general, experts point to the fact that is the Russian-Chinese financial cooperation develops in favorable way Moscow will become No.3 world financial capital (after New York and London) giving little chances for all European capitals. So, what we may expect from MICEX-HKEx union?

• Establishment of cross-border listing?
• Establishment of a flow of direct investments of Chinese investors?
• Listings of Chinese companies in Russia via RDRs?

In any way, latest news show that the wishful dreams are now turning into realty – Moscow gradually emerges as No. 3 world capital.

Russian IPOs – Review of 26th Week of 2007.

THIS POST WAS ORIGINALLY PUBLISHED JUNE 30, 2007

Russian IPOs – Review of 26th Week of 2007. 

Is Russia Going to Help US Economy?“The next globalization battle lurks over the horizon, but you can already guess its contours. It will be shaped by two revolutions in finance and business: the growth of vast government-controlled investment funds abroad and the muddled progress toward shareholder democracy in this country.” This is a piece of Washington Post “The Next Globalization Backlash. Wait Till the Kremlin Starts Buying Our Stocks” by Sebastian Mallaby (June 25). While this examines all the issues related to sovereign funds, it is worth to note this months’ trip to Moscow by Treasury Deputy Secretary Robert M. Kimmitt. Little is known on the results – the only brief interview was published by RBC-Daily June 25. Basically all discussions were centered on the Stabilization Fund of the Russian Federation and possible investments into US economy. As of June 1 the Fund has $ 116.8 billion and in 2008 it will be spilt in two: the Reserve Fund and the Fund of Future Generations. It is widely assumed here in Russia that both Funds should invest outside the country. Mr. Kimmitt in his statements expressed the idea that the US economy is a good target for Russian investments. As you may read in Mr. Mallaby’s article, the sovereign funds are now abandoning their long time strategy of investing in US Treasury bills and turning to investing in companies (SIC! - Blackstone Group (NYSE:BX) - China). Was it the issue that Secretary Kimmitt discussed in Moscow ?

Russia – Strong Bank Assets
Russian Bank assets grew 11.1% to RUR15.599 trillion (approx. $599.11 billion) in Q1 2007, the Bank of Russia announced this week. The aggregate capital of lending agencies rose 19.3% to RUR2.019 trillion (approx. $77.74billion), boosted by the IPO launched by Sberbank (RTC:SBER) of Russia in Q1. The number of credit institutions boasting a capital upward of EUR 5 million in terms of rubles reached 59.2% of the total number of lending agencies which operated in Russia as of April 1, 2007, up from 56.9% as of January 1, 2007.

And More Private Wealth in Russia

This week financial services group Capgemini and Merrill Lynch (NYSE: MER) released “WORLD RICH REPORT 2007” that says that that number of millionaires in the world increased by 8.3% in 2006, with about 9.5% million individuals now estimated to have more than a million dollars in financial assets. The club of “High Net Worth Individuals” (HNWIs) expanded more in 2006 (11.4% over 2005) with Singapore, India, Indonesia and Russia producing the greatest number of new millionaires. Regarding Russia here is a graph form the report.

OMX and Russia

OMX (NYSE:OMX) is stepping up its activities associated with Russia. This week two events shape the news about the stock exchange. Trading in EnergyO Solutions Russia AB (“EOS”) was commenced at First North, OMX’s alternative investment market. This is a new investment company that just a few months ago started its operations and has in its portfolio assets of Russian electricity companies. The prospectus of the company gives a good overview of the sector and its current situation.

The second event was the “Dual IPO in Moscow and Stockholm for mid-cap Russian companies” conference that was held in St.Petersburg with participation of the Swedish Embassy. Unfortunately I learned about it too late to attend but from advertising materials I understand that it was a quality presentation of possibilities for Russian companies.

Martha Stewart Loves Russia
Martha Stewart, the founder of Martha Stewart Living Omnimedia Inc. (NYSE:MSO), is very close to launching her Martha Stewart Living magazine in Russia. This week RBC Daily reported that several market players received proposals on cooperation with her company. Russian experts believe that this effort might be successful, but Ms Stewart is not well known to the Russian audience. However, if she would be able to attract to the project some Russian celebrity – that might add more popularity. Stewart was highlighted in Russian press in April this year when she came to the space town of Baikonur to say goodbye to Charles Simonyi, a software engineer and developer of Microsoft Word who paid between $20 million and $25 million for a 13-day trip to the space station.
New IPO Candidates

• Transaero Air carrier – as the first step to the planned IPO closed a private placement deal with the sale of 4% of its equity.
• Technosila electronics retail chain – as the first step for planned IPO issued CLNs for $ 100,000
• Inter RAO UES, Russia's electricity import and export operator – IPO in 2008
• Kamaz (RTS: KMAZ) – possible IPO for $300 million in the second half of 2008
• ST Group Region investment construction company – LSE IPO in MaY 2008 with the hope to raise $ 1 billion
• Irkutskenergo, one of the largest power generating companies – IPO in 2008
• Neloaks gold mining company – possible IPO on AIM this autumn
• KuibyshevAzot, a chemical company – IPO at the beginning of 2008
• ALMAZ-ANTEY, a leading vendor of air defense systems – IPO somewhere in 2009-2010