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Stock Exchange is Strictly for Creative People

Today the reality is that a company cannot enter stock exchange without significant achievements. The investor is fed up with vague promises and if finally decides to invest – it will be purely symbolically.

As soon as markets began to show some signs of life after the crisis, everyone immediately started talking about IPO. Moreover, a “boom” was expected not only among large companies, but also among innovative ones – “wards” of the state corporation Rusnano. I have to say, it never came. So far in 2010 there were only 5 placements totaling $687,3 million (excluding Mail.ru and “Farmsintez”). During the pre-crisis 2007, volume of placements totaled $19,5 billion. And there is no point on wishing for a miracle to happen in this last month and a half remaining of this year.

Until better changes

In the Fall, one after another, several companies decided to postpone IPO till 2011. In particular, a large in world standards manufacturer of materials for electronics “Monocrystal”, aviation company “Transaero”, leasing company “Ilyushin Finance Co.”, Orient Express Bank and several others. Some don’t explain the reasons, some resort to traditional excuses blaming the market’s volatility.

According to Konstantin Smolentsev, Chairman of the Board of Directors of the consulting company “SMOLENTSEV & Partners”, defining determinants for the activity of many companies from the list of candidates to become issuers of 2008-2009 were not the best. For example, “Transaero” has been unprofitable for three consecutive years, and in 2008 its losses increased tenfold – to 3,1 billion rubles. The company refers to the fact that in 2009 its loss of 1,9 billion rubles was “paper”, that is taking into account exchange rate differences, accelerated depreciation, as well as fleet maintenance costs and investments in it that did not capitalize. Revenue in 2008 grew by 75%, but in 2009 it almost didn’t change. Nevertheless, negative earnings are the way to characterize this.   

2010 has been more successful for potential issuers, that is why there is a wish to move the deadline of placements to create higher price limits. And this applies not only to public placements but also attraction of investor capital as a whole. “From our experience there was a case when we attracted a foreign venture fund for a company, but that company froze negotiations on the stage of signing a contract due to expectations of higher price limits in the next year”, – Konstantin Smolentsev told Bankir.ru.

These factors, coupled with volatility on the market force many companies to delay publicity despite the need for financial means. If a year-a year and a half ago funding was required primarily for working capital or refinancing of old loans, than right now it is needed for investment and further development. 

There is no rule without an exception

Nevertheless, some issuers decided to carry out IPO right now. The brightest example is a Saint Petersburg pharmaceutical company “Farmsyntez”, which will enter the stock market on November 24th. Placements will be held on the Market for Innovations and Investments (MII) MICEX, which enjoys the support Rusnano. All funds raised during the IPO will be used to accelerate business development and implementation of R & D-projects and expansion into overseas markets.

However, the described case can be considered special. Experts have various opinions about other potential issuers but the "Farmsintez" company is mainly referred to as a promising organization with good governance and, most importantly, with a selling product. In addition, as Konstantin Smolentsev noted, competition in the Russian pharmaceutical industry is now very low. Moreover, for many international institutional investors investing in medicine and biotechnology is the priority. Consequently, there are no compelling reasons to transfer the date of IPO.

In other words, both Russian and foreign investor today is very picky, and is not going to buy just anything. Therefore, only those companies should enter stock exchange that are able to convince investors in their bright prospects. And the rest should wait for better times and in the meantime work on long-term strategies.  

Êira Akkerman for Bankir.Ru

12/16/2010

http://bankir.ru/publication/article/8385709

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