Russia’s central bank is to encourage the country’s financial institutions to contemplate IPOs. It has unveiled proposals aimed first at boosting their capitalization and then persuading them to list their stock – presumably on a domestic exchange. That, certainly, is what the Russian financial regulator, the Federal Financial Markets Service, is advocating for all companies that are contemplating a listing.
Among the measures outlined is a proposal that the central bank should allow small stakes of less than 1% to be traded freely – without its permission. In addition, for trading of stakes between 1% and 10%, the central bank will only need to be notified, rather than asked for permission, as is presently the case.
A third proposal is that all banks with a capitalization of more than R2.5 billion ($90 million), will be obliged to maintain a free float of at least 10% on Russian exchanges.
There are several problems with this plan. First, although investors might be willing to buy some of what could be called blue-chip names from the banking sector, such as Vneshtorgbank and Gazprombank, it is hard to see that any investors have such short memories that they have forgotten the historically parlous state of the banking sector in Russia more generally. So they are unlikely to look at names outside of the top few.
Secondly, the obligation on banks to maintain this free float seems illogical, and would probably be difficult to police.
The central bank should be encouraged in its aim of increasing the capitalization of Russian banks, given the speed with which their asset base is expanding, and it is to be hoped that they receive plenty of feedback in the days until May 15 during which public discussion is being welcomed.
Moves to strengthen the system, such as the compulsory deposit insurance introduced in 2004, have gone some way towards building belief in a sector that has suffered several crises of confidence in its 15 years of post-communist operation.
It’s to be hoped, however, that among the feedback that the central bank receives will be advice not to force banks to maintain a 10% free float — as this would not be in either the banks’ or investors’ best interest. Banks should, in this instance, be given the space to develop in the way that suits them best.
