Russia debate: Learn more about the participants
Russia debate videos
|
|
EXECUTIVE SUMMARY
• Russia is feeling the effects of the global financial crisis, but it is not as extreme as 2008 when the market effectively shut down completely
• Russian companies are improving corporate governance to make themselves more attractive to foreign investors
• They are spending time and effort making their international securities as attractive as possible to a wide array of international investors
• However, more needs to be done to develop the local capital markets and that will entice more international investors into the market
• Pension reform and changes to listing requirements would go a long way to achieving that goal
• The bond markets are relatively strong, with a good culture of debt repayment and a long pipeline of potential issuers
• Over the past year, ground-breaking new deals have emerged that have cemented some Russian names at the top table of issuance
• Privatization IPOs will come out in 2012 and 2013 and more Russian companies will tap into the international debt markets in coming years, but in a wider variety of currencies and structures
• Russia has a huge opportunity now to use the crisis to push through local changes and internationalize its capital markets. If it can show that its markets functioned through this crisis and that it has come out stronger, international investors will truly believe that the market has become an international one |
|
|
Euromoney The IMF has cut its growth forecast for Russia and foreign capital has been leaving the country. But despite this, the mood is still upbeat in the Russian capital markets. Companies are still reporting strong numbers and everyone I speak to is very positive about the future. But even still in the short term there are clearly problems. Where are we with the markets?
EK, VTB Capital Despite global uncertainty and volatility, the Russian ECM market has had a record year. Sixteen deals were completed in the first half and more than $10 billion was raised. Of course it was not just a record year in terms of completed deals, it was also a record year for deals that were pulled: more than six IPOs, worth about $5 billion, were pulled from the market. If every deal had happened we would have raised $15 billion, and that is very close to pre-crisis levels.
Investors in the market are displaying a high level of selectivity and price sensitivity, especially now that the market is not stable on a global level. So not all the companies were well prepared to do deals.
AS, VTB Capital On the DCM side, in the first half of the year all issuers and investment banks were expecting high volatility in the second half. But in the first half $17 billion was raised in the international debt markets by Russian issuers, while only $6 billion matured. So you can argue that $11 billion of new money came into Russia. In the CIS, overall issuance was around $26 billion, which is 40% growth for the six months year on year. A lot of companies have pre-funded themselves. Quite a few Russian issuers also became innovative. For instance, the sovereign’s Russian rouble Eurobond issuance and Russian Railways, which went to the sterling market and placed an unheard of 20-year transaction.
Euromoney Igor, given that Alrosa is planning an IPO, from a CFO’s point of view how do you view your ability to access the capital markets?
IK, Alrosa There is a backdrop of volatility and tension in the market, but for first-class issuers the markets are still open. We see no need for extra liquidity domestically or internationally. We see certain volatility in interest rates but liquidity is sufficient. This is true of issuers of our calibre. Our smaller counterparties have been complaining and are in a more stressful situation.
Euromoney From an investor’s point of view what are the challenges facing the Russian IPO market? Are they to do with the internal culture of the market players or to do with vulnerabilities to the external crises happening in the world, or is it more to do with the structural issues facing the Russian domestic capital markets?
JG, East Capital If we start with the mentality and culture in Russia, the aim is to maximize the price in the IPO, which doesn’t make sense from an entrepreneur’s point of view. If you are too greedy, you might end up selling 20% but keep 80%. If the IPO ends a failure, the rest of your holding – the 80% – could not do well. We need to change the attitude of Russian entrepreneurs. Also for a company doing an IPO, it needs to look at peers in the market and take a certain discount. It is realistic to expect to do an IPO at a slight discount to the listed peers as the market does not know them.
OM, Rusal We are in a provocative discussion here. I actually agree that in many cases the owners want to maximize the value of their own assets. When you do a deal, it means there is a market price. The question is, what is going to happen further. If you are to sell your stock in a growing market, investors are happy, but if it is in a volatile market, investors could be disappointed. Since 2008 we have been in a volatile world so I think it is a bit unfair to blame Russian companies for trying to raise as much capital as possible. If you look at Rusal’s IPO for example, the price of our share at IPO was HK$10.80. In the past 12 months it has gone from HK$7 to HK$14 so investors could have made – and lost – a lot of money. But it is important that Russian companies are getting more experience. Even if the public market is closed we are seeing private transactions. We will see lots of interesting public deals when the markets come back.
