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To sell something useless

The hero of the legendary "Prostakvashino" Uncle Fyodor had said: "To sell something useless, you must first buy something useless". Obviously, for now to sell and buy is all that investors can do for innovative companies. And the profit went to the original shareholders, who got rid of the IPO of part of the shares.

In the summer of 2010 at the Moscow Interbank Currency Exchange (MICEX) one after another two innovative companies were placed – “DIOD” and “Russian Navigation Technologies” (RNT). According to Dionis Gordin, a board member and a managing director of investment activities of the Russian Corporation of Nanotechnologies (SC “Rusnano "), by the end of the year a dozen more innovative companies will enter MICEX. During September-October IPO of foreign organizations are expected on the Russian market.

Recently the government has been putting a lot of effort in trying to attract investors to innovative projects, and not only Russian and not only through the stock exchange. For example, there is interest in foreign venture investors. On May 25th the President Dmitri Medvedev met with heads of American funds. During the meeting the President said that Russia is lacking venture capital. According to him, currently there are 20 active venture funds in Russia with a total capital volume of approximately $2 billion, which in comparison to USA and other countries is extremely negligible. However, foreign investors hardly showed any interest.

Market for innovators

Talks about creating “Russian NASDAQ” have been going for quite some time now. In January 2007 a trading platform RTS START has been launched, which is designed for small and medium capital companies. Securities of issuers included in RTS START segment are simultaneously allowed to be traded on RTS. Currently RTS START has 5 securities: shares of the paper mill “Kommunar”, Kosogor metallurgy factory, “Elektrozinc” factory, Neftekamskiy automobile factory, and “SiGMA” company.

In July 2009 a Market of Innovations and Investment (MII) has been created on MICEX. The main goal of this joint with “Rusnano”  project has become the creation of a mechanism to attract funds to high-tech companies – from financing innovative business on early stages to its release to a public offering. The first IPO in the new sector was held in late 2009 – then the Institute of Human Stem Cells (IHSC) entered the stock market. In June 2010 “Diod” has released its shares on the stock market, and in July of the same year – RNT.

However, placement of a small or medium capital company on the MICEX could have been done in 2007 when the Sector of Innovative and Growing Companies (IGC) was created. The First issuer of the IGC Sector has become a closed-end investment fund of particularly risky (venture) investments “FINAM – Information Technologies” (FINAM-IT). As well, through this sector three more companies entered the stock exchange: IT company “Armada”, Television channel “O2TV”, and NEKK, a producer of chemicals. By the way, in July 2010 “Armad” has transferred its shares from IGC Sector to the main list of securities in MICEX. According to the General Director of the SE MICEX Konstantin Korishchenko, it signifies “the growth of corporate management, as well as achieving maturity of the company’s business”.

Ready for the stock exchange?

But is it too soon for Russian innovative companies to enter a stock exchange? Usually there is a phase of venture investing before IPO. Among those innovative companies that have already entered the stock exchange through the MII MICEX platform, only RNT has went through this path. Many experts believe that currently Russia has almost no projects ready to enter the stock exchange. It doesn’t mean that there are no good innovative companies. The thing is that its’ shareholders do not want to allow anyone else to manage them. The same companies that, on the contrary, are willing to sell their shares, as a rule, don’t have a high managerial level and perspective business ideas.

Konstantin Smolentsev, Chairman of the Board of Directors, IC “SMOLENTSEV & Partners” has told Bankir.Ru that relying on the work experience with Russian companies of innovative business and analysis of the world experience, it is too soon to enter IPO for many Russian innovators. Main factors are the following: lack of experience of corporate management, lack of a history of public borrowing, low management level, poorly reasoned financial prognoses, and several other serious reasons. 

Venture financing helps to solve these problems, even perhaps, not one round, but throughout 3-5 years. A breakdown of a project into stages in terms of attracting funding allow for a business more intensely, simultaneously building up experience. The market value of a business with such path to IPO is much higher, which makes IPO more attractive for large players on the financial market.

We don’t need experience

According to Konstnatin Smolentsev market of shares of innovative companies is quite risky by definition. It is especially true for Russia where this segment does not have fully formed parameters that allow you to look confidently into their future. These are highly risky assets. Therefore, minority shareholders have a chance to make money on these shares and having the risk of losing. No one can give a reliable forecast at the time of placement, as then, during operations on the secondary market. The volume is too small of the mentioned segment of shares, and market threats and restrictions are too significant.

But for venture funds innovative companies are attractive assets. Many, especially foreign players have experience working with such organizations, therefore, there is an opportunity to share that experience. When venture investing, a business does not get many minority “passive” shareholders, but one of a small group of qualifies partners, who are interested and are actively influencing the formation of a successful business.

That is why for the minority shareholders, and for large investors, as well as for the stock market itself it is better to initially develop a business with the help of “angel” or venture investments, and only then enter IPO. Then there are more chances to earn profit for the minority shareholders, and most importantly, it is likely to continue in the long term. 

To make conclusions for the companies placed for business, even preliminary, is too early. Any qualitative assessment can be carried out only in long-term, when there is understandable efficiency of management actions, successful realization of the claimed business-strategy, and investment program of each concrete company. According to Andrei Sapunov, currently the following is obvious: placed issuers on the stock exchange have become more competitive. A greater transparency of business significantly increases appeal of public companies for partners and contractors in comparison to non-public competitors. Given that RNT, DIOD, and IHSC are oriented on strengthening capacity of international presence, openness of their business would be a powerful driver of growth of operational, and consequently, financial performance in the long term.

Tatyana Lanshina, Bankir.Ru



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