from plans to try and shoot some. stunts on t.v. don't come. into the room. there were dots to recap now off the top stories dozens of people have been killed in syria antigovernment day of rage protests the un is demanding an investigation into western interference and blame mental trouble of the. new yorker for its his old wide internet a lot of violations pulled from people get poland new yorkers complain that it's under threat fundraising the troops there basically says. russian army

recruits are facing systematic vod and some believe within their own ranks are the parents of young soldiers appalling down the street and pound infant cold feet and there's music. up next to people of bell's guests discuss the difficulties russian companies face when writing stock on foreign exchanges on the money is next. hello and welcome to on the money with the business of russia his business i'm peter all of today we're talking about russia for russian companies and initial public offering. to discuss this i'm joined by then your salter here in the

studio with me here is chief eat any equity strategist unicredit securities we also have denise good cos he is c.e.o. x c i was annoyed group of companies ben heiress he's editor in chief of business new europe and they tell you our low but she is chief economist and author back all right daniel i want to start with you first here let's go back to two thousand and six two thousand and seven that was the last time we had a real slew of i.p.o.'s russian i.p.o.'s then we had the financial crisis and now again we have another slew of i.p.o.'s coming from russia listing elsewhere we'll get to that later what's different now than in two thousand and six in two thousand and so i think what we saw in two thousand and six and two thousand and seven was the russian economy was really booming at this stage and a lot of the companies listing in two thousand and six to two thousand and seven were new companies in their sector so it was there to be the first up sensitive of the retail sector or the real estate sector both of new sectors will come into the

market people want to get exposure to this fast growing country these new sectors and they paid a pretty high valuation for companies and sectors they didn't know very well and then they found that overpaid in the downturn they lost a lot of money and it's a case now of once bitten twice shy so investors at this point are doing a lot of due diligence into the companies they're investing in there a sense on valuation and there's a bit more competitions. if a company is listing it's now not the only company that has a wide range of choice in the russian market so people are a lot more a lot more careful a lot more sophistication. there which makes a mistake that they made in the last in the last one to tell you if i can go to you last year the whole story was about dawn's a little bit into this year with this change why all of a sudden interest in russian equities. well i think this year and this thing and of course i wasn't turned over there from the house in the increase in the low prices which is usually russian economy still very much based on a quarter of the. russian equus i think these definitely

proved perceptional for international investors for the russian companies lease was really arguments for the russian companies to think again about was as opposed to you know thinking and wallboard market which will seize previous years also i think additional point is that privatization lease which was announced by the russian government quite recently so i think a while there in terms of privatization we're mainly a corking about also if you combine this will be offered for i was going to go on and they still i think this privatization at least. improved in the also increasing interest or rule interest for the russian market so this is that was seen as window for what unit there for the non-state russian companies also present their story for them rests interesting is how you get really ahead of me because i want to talk about privatization later but then if i can go to what are companies thinking about

and their mo in an i.p.o. again we will give it a few points here but all the companies are actually doing it right now what are the things that are challenging them the most make this want to go down this road. well peter i think the first thing that companies are looking at is what state are they in currently can the can they actually fully we're going to use an i.p.o. will they go a different route of raising reason cash necessary for their business of expansion there's always the option of private placement there's always the option and but if a company is in a sophisticated state of its management structure and basically following some of the recommended principles. say for us accounting i.p.o. is definitely much better option i think the companies are also looking at what is the inherent motivation meeting what splits do they do between primary and secondary is a basically a cash out it was basically

a cash that's necessary to from the operation or to fund a new projects know these are some of the things that are going through the minds of the companies that are currently listing or about to list then if i can go to you if we can put russian companies into a context of emerging markets in eastern europe and what how are the russians playing out here compared to their peers in eastern europe and i'm looking at emerging markets setting. well russia is far ahead in so much it's got by far the most sophisticated financial market of any of the countries in the region and if you imagine the whole of the capitalization the market something on the order of two trillion dollars half of that is russia and the trading volumes here in the billions of dollars where is somewhere like ukraine which is the next biggest market there in the tens of millions and depth of the markets gives companies here the option of raising significant amounts of money so companies like tennis is if they want to go abroad they can raise money but there's also the option of doing it to mystically and that's

a huge advantage i mean companies that are looking to expand that need money cash to invest they can tap into mystic market if they need to and then your recently there's been a lot of commentary that russian companies when the i.p.o. some of been withdrawn or pricing themselves too aggressively i mean what i mean obviously you want to get as much money as you can when you when you go public but have the russians been over aggressive. i think there were there were some cases of this in the past however there's a price for everything so you know the investors what person price the companies will accept a certain price and i think the idea of the market is to match the supply and demand so there's been a perception that russia comes we're too aggressive but it's changing our look at the most recent years in russia some of them have cuts the price range some of them have priced it at the bottom of the range so i think companies are accepting now that they should leave some upside for investors on the table so that both parties get what they want the company gets the money and the investors get a good return that's how the market should work is any of this playing into the roadshow because this is something relatively new for russian companies i mean

i.p.o. it was new for a lot of russian companies how important is the road because it's all about corporate culture to getting the right kind of mix i mean if you're asking somebody for a lot of money they're going to want to kind of get to know you we're going to know your culture and what you're going to do with the money i mean there is a kind of a human element here a cultural element that is bridging that gap this is actually right i think you know companies need to start a relationship over the long term with mark it's very difficult in a half an hour meeting with a company to really assess how good are they going to be in the future how successful they'll be in the idea about due diligence i was looking today at the i.p.o. prospectus for resell it was one thousand one hundred forty one pages long so there's a lot of due diligence going on but you know it's not a place to meet the company face to face really understand what the management is like how they can still live a growth in the future what their ideas are and you know are they do they seem to be decent people who can look in the eye and and understand what their motivations are identifying go to here's the perception of dealing with russian companies

changed on the one hand we're looking at foreign investors and the way russian companies are going to market now when it's one of the russian companies doing most difficult most challenging when going public. i think it's. it's a question of what are they willing to change in their every day management structure in order to become as visible and transparent as possible to the western investor i think of as the corporate governance is a very difficult issue for most russian companies to overcome i believe. disclosure is something that's also very difficult for russian companies to get hold of and hang over but i think more and more you will see that the russian companies that are. looking at this thing and have listened so for have found it very useful exercise and in their management structures. just the fact that you're actually able to attract a different client or that's a different vester for your company allows you to actually get better people on

board you can align management and shoulder interests given the fact you have a sure plenty can offer to cheer employees so i think. basically those two things it's not so much about doing the day to day business it's actually talking about the way you do the day to day business and a lot of the reporting. is is a difficult job because in addition to your question then if i can stay with you because i want to ask everybody on the panel about this it we see all these companies i.p.o. ing on foreign markets foreign exchanges ok and not in russia so why are they doing it there it's a hard question it's something that the russians are not happy about we know that mr medvedev is unhappy about it he's even said that russia is only halfway there in be able to do this what is the biggest drawback or the disincentive for russian companies to listen own life. i think probably the easiest or with the answer the question is if you look at the my sex and the combined they probably do about five

hundred billion worth of trading annually if you look at just the london stock exchange you're looking at to two point seven trillion. cash flowing through through their particular. exchange and i think that once again the liquidity of the stock that is being traded publicly you know western exchanges. as a trader premium you have the opportunity later if you want to increase your debt as well to do it at a cheaper rate then you would with with a russian listing obviously you also have the opportunity to be indexed some of the western and texas so i think it's it's not only. it's not only to show that you can list in the western country it's also the fact that you are given a much better opportunity to work to attract better investors then would you it would you add anything to. the big difference between the russian market and the western market is the quality of the investors you have

a very deep pool of investors pension funds insurance funds who are in for the long and that gives a basis to your stock price those guys hold and wait for the company to mature the problem with rusher is that although the market's relatively big it's extremely shallow when the whole institutional investor segment of the market here is completely missing and consequently most of the investors in the russian market banks or foreign funds hedge funds what have you and they have a very short perspective six months and so that makes the russian market very volatile you know when it's i mean i could hear it was shooting up but it's over one in every ten years it goes it goes south and then it can be seventy five percent of it's his rally and so it's a quality of investor the russian companies are looking for when they go abroad long term yen all right before we go to the break anything to add to that. i think that's pretty much right it's all about stable base investors which can even types of season so far in russia in a pension form reform will change that once you get to must invest in russia

they'll be buying russian stocks long term doing that and due diligence so i think that's the challenge for russia to put up those and we have to go to a break and after that short break we'll continue our discussion on russian i.p.o. stayed with r.t. . to. bring you the latest in science technology from the realms. of the future coverage.

more news today violence is once again flared up. these are the images the world seeing from the streets of canada. shankar asians are. welcome back to on the money i'm peter lavelle and we're discussing russian companies and i.p.o.'s but first let's have a quick recap of russia's experience with i.p.o.'s. russian companies spring in themselves to the market but equally international listings if you have both sold a business case and a commitment to sell in that business case to meijer investors of course investors cannot rely on their own and that was the research or just that or the company

or so or all the investors making their own decision most liberals probably are one of the meetings with the management. question still comes down to management but it's capable. of course. the upper or organized professional or to always looking for success also russian corporate culture has come a long way in the last decade filesystem process can still be quite challenging as a corporate culture transparency is the preparedness of the all members of the business you know all too common sort of all point we talk about all national structure which sometimes continues to be in the company it was called altamont beneficiaries of the business to disclose the. sort of stuff that's usually was kept away from the public are you saw that as a huge cultural change for the russian business in general regardless of the place

of the western companies making the effort to list then have access to funding for the deep pockets of major global centers a kid international listing there is a obvious interest from the russian investors but the financial market you. it's galling but it's too much as they were put on him for markets in the world store or for. management you know russia. has significant. typical. financial central. u.s. europe and asia the more companies listing creates more of a market and this is in turn makes it easier for other companies to consider this a step i think it is important. it is important because it provides a broader view of history for the market participants the transparency of the

market the knowledge of what we did so and market actually creates a market for itself and if you have just two corporations. people growing together there's ability as there is more marking the market remains a key we think global outlook still seems precarious russian companies looking to place. to get their worst and crosses right iran know they can own their money. ok now if i go back to you it's interesting we put this all into a global environment here we have a lot of volatile volatility when it comes to oil prices we have events playing out in the greater middle east where no one can predict predict an outcome. the u.s. is still grappling with its deficit and the dollar. is volatile as well i mean how does how do we how do russian companies go out in markets themselves with this tsunami going on in the world. but i think of the moment that full of this

global volatility is named i will see play fable two russian two russian companies because i think it's russia still as i mentioned seen. more that agreement a quantum in quantity to drown out. the story so as a result i think at the moment the fact of having or oil prices skyrocketing thanks to this in the middle east developing. north african and global world instability this is rather how clean russian economists to present themselves because i think here as opposed to pre-crisis store while pre-crisis russian companies was positioning themselves as you know companies willing to diversify companies are going to go to new markets companies wounds to increase their competitive advantage i think right now we go well first we don't have a lot of fighting all seven there because we have seen this year these are

companies which wanted to present their shares for investors for already some time so i think at the moment this is rather when the public interest for those companies which were already wound to come out to see investor sentiment just using global environment and this is definitely the moment plain favor with russia but i agree completely when oil prices will go down then we will see approach prove us or sentiment and this is probably the reason which is now bruce's are calvinists to this i.p.o. process then you know the founders came to my mind is an italian speaking good russian and in its i.p.o. as being a flight to quality i mean with us all this volatility i mean russia look at. russia and additional one reason to make it look attractive i mean if you remember in the spring of two thousand and eight as the subprime crisis was i'm wondering russia was billed as a safe haven of course the crisis hit russia a lot harder than anyone was expecting and i would back in the same position i'm in

the my. fundamentals of the country are rock solid it's got a tiny it's got a budget deficit which is shrinking rapidly. almost back to where they were before the crisis and so on it looks very solid but the point i think here is underestimate him and russia is seen as a commodity play however in the meantime it's the consumers that are becoming the driving force of the economy and they account for half of the g.d.p. and one something we haven't touched on it is that unlike the other emerging markets and still trade a heavy discount the valuations are still much lower than in all the other emerging markets and yet over the last ten years russia has performed every other emerging market by a factor of four of the last decade russia. seven hundred percent and the next best performing market was china with just under two hundred percent and that's based on the earnings and the earnings that based on the consumers and so people are slowly

getting to know this story if you look at consumer stocks they traded very expensive but again it's a specialist in a sense is not widely known and in the meantime we are still dependent on what happens the oil price which dictates the sentiment ok did you find out it's been mentioned already on this program which is going to be a whole slew of private is probably companies coming out is this going to be more attractive to foreign investors because we still have spare bank they'll go to the market but these are state or state aligned companies here do you think investors really want to different play here is the privatization process comes about i mean is that going to be something that would be you know in the tsunami story for all the metaphors but how important is that i think of the key for the investment climate makes it clear the government believes in the markets it believes in in external finance in equity investors and i think that is a very strong underpinning for russian equities. in general business understand the

government can. it's they understand the importance of exit markets and financing for companies that companies will be able to raise capital more quickly and thus boost the economic growth in russia so i think if you or everyone when say the russian government wins they get faster growth and the investor should win by having a more protected environment then if i can go back to you there's always the issue of corporate wars in the corporate boardrooms we have the. ongoing affair will cross the aft we. call roussel i mean these make the wall street journal this makes it into the headlines here is how do you sell russians saying well this is just business as usual this happens all companies here but that's the story that makes the headlines when it comes to russian companies to this day russia is a young economy fast growing these companies these businessmen building lives large companies and there's a lot of opportunity to look at the west there's a moral status quo people to establish themselves and their nation is and the

backless force at street level in terms of marketing and consumers whereas here everything to play for your country is to capture markets to end. consolidation process this and so you know we're still very much in the swashbuckling. or chapter of russia's development and that leads to corporate conflicts. tell you if i'm going to go back to you is that he when we look at the companies going public is the russian government doing the right thing is the ministry of finance doing the right thing i mean what i'm saying are they creating obstacles or are they creating a better playing field for companies to go out to market because there is this perception that when we have to mention the word corruption in things like this that are still in play here are they good is the state doing the right things to help companies go to market. but i think if west thing can waltz russian economy can garment pulse in terms of can a promote

a financial market developments we hear a lot of right things like very recent well written louts if a couple of years ago had a very intensive discussion about integrating global financial center in the russia there is the whole of the wooing mr improve the regulation of financial markets and there is the understanding of this improvement of regulation go hand in hand with the improvement of the legal system so i think there is a lot of rights indication and the right. indications in our sense how that in terms of implementation i think there are always a question because we're on the standard to do with corruption to improve the legal system or even you know to create the world financial center in russia of this requires a lot of time this requires a lot of efforts this requires. systemic changes and these changes will not just come you know a sudden two more assessing there is definitely a willingness from the government side to the how rational conversation are and the

privatization by the way this is another good indication because by privatizing the cabinet will definitely improve the level of competition in the quantum it and then we will how can. they aggressive and competitive companies to improve their investment case but i think we'll still have to wait for them maybe more suicide science in precisely in terms of the implementation of all these ideas then you probably get the last word in the program here if you can create a hierarchy of things you need russian companies need to do when going to market markets or just one time when they need it which most importantly. transparency and fun kind of track record they can prove that they can grow some kind of stress tests they can explain how they would react and different in different market conditions and a great growth story people want to invest in russia because of growth so it's a story. i go to you well i guess you get the last last word here your company may

be going to i.p.o. in the in the immediate future what are you doing what kind of environment are you looking for to be able to do that. i think it's a lot more than just the environment it's relative service of macroeconomic factors and history factors are important but i would agree with what daniel said i think it's a story you can tell it's the history that allows you to prove that that story can be fulfilled it's the proper motivation of actually going to the i.p.o. and it's the right pricing you need to give the investor an opportunity to earn some money by investing with you and that's exactly what we're doing we're looking at two thousand and twelve as a potential investment year for us. might be shifted to two thousand and thirteen but so far we're we believe the most likely to be in two thousand and twelve ok looks like we ended on a very bullish no there i want to thank my guests today here on the program and thanks to our viewers for watching us here on the money see you next time and stay with our team.

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