to be. here with our to recap of our top story syria is on the new u.s. sanctions off the dozens were killed in friday's until government protests got the nation's once investigation western it's a very it's a way for making matters worse and. new york's smokers will soon find out lighting up could leave them unlocked in the pockets around the targets of lunacy you call those you could see the lives of used by no respect maybe the city struggles to raise cash. burn conscripts in the russian army are regularly

bracing semitones only use neutrality is a relative that's important for. the culture. but next to the bells guests discuss the difficulties of russian companies face when printing stuck on foreign exchanges when 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 offerings. discuss this i'm joined by daniel salter here in the

studio with me here is chief e.m.e.a. equity strategist unicredit securities we also have denise he is c.e.o. of a group of companies but an heiress he's editor in chief of business new europe and little your logo she is chief economist for 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 seven 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 the sector so we're going to be the first representative of the retail sector or the real estate sector lots of new sectors will come into the

market people want to get exposure to this pos great 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 a 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 they're very sensitive and valuation and there's a bit more competition so. if a company is listing it's now not the only company in that sector there's a wide range of choice in the russian market so people are a lot more careful a lot more sophistication of the situation that was made similar mistakes that they made in the last in the last call not 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. i think this year and basically starting end of two thousand and ten of a definite i have seen the increase in the oil prices which is usually russian

economy still very much based on a quarter there. are fresh and i quote this i think these definitely proved perceptional for international investors for the russian companies and this was really their arguments for the russian companies to think again about i.q. was as a cause do you think involved want market which will seize previous years also i think additional point is a privatization release which was announced by the russian government quite true simply so i think a while that in terms of privatization of where mainly poor came also if you call this will be offered fight caused by the government but still i think this privatization at least. improved in the also increasing interest overall interest for the russian market so this is definitely seen as window of opportunity for the non-state rational companies also presenting a story for invests was interesting is how you can really help me because i want to

talk about privatization later but dennis if i think you went what are companies thinking about now in their mo and i p o. daniel gave us a few points here but the companies are actually doing it right now what are the things that are challenging them the most when they make this want to go down this road. you know 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. word will they go a different route of reason reason cash necessary for their business that expansion there's always the option of private placement there's always the option and put if a company is in a sophisticated state of its management structure and basically following some of the recommended principles of say i first accounting i.p.o. is definitely much better option i think the companies are also looking at what is the inherent motivation median what splits to do between primary and secondary is

a basically a cash out it was basically a cash that's necessary to fund the operation or to fund a new project so these are some of the things that are going through the minds of the companies that are currently listing or about to list them if i can go to you if we can put russian companies into a context of emerging markets in eastern europe and look at how the russians playing out here compared to their peers in eastern europe and i'm looking at emerging markets setting. russia's 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 c.i.s. the capitalization of the market something on the order of two trillion dollars half of that is russia and the trading volumes here are in the billions of dollars where is somewhere like ukraine which is the next biggest market there in the tens of millions and that depth of the market gives companies here the option of raising significant amounts of money so companies like and this is now if they want to go abroad they can raise money there 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 the mystic market if they need to daniel recently there's been a lot of commentary that the 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 us in the past however there's a price for everything so you know the investors look at some 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 russians were too aggressive but it's changing if you look at the most recent type years in russia some of them of cuts the price range some of them have crusty but the bottom of the range so i think up is accepting now that they should leave some upside for investors on the table so that both parties get what they want to the company gets the money and investors get a good return that's how the market should work if any of this play into the

roadshow because this is something relatively new for russian companies so i mean i can only use new for a lot of russian gump and how important is the road because it's a lot 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 get to know you we're going get 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 companies need to establish 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 they are going to be in the future how successful they will be in the idea about due diligence i was looking today at the . prospectus for a 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 much best to meet the company face to face really understand what the manager 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 at the eye and understand what their motivations are . and 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 what is one of the russian companies trying 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 i was 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 a 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 this itself or 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 it's

a different vester for your company allows you to actually get better people on board you can align management and shareholder interests given the fact you have a share plenty can offer to. your employees so i think. basically those two things it's not so much about doing the deed of the 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 difficulty getting them 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 you know the mystery dead isn't happy about it he's even said that russia is only halfway there and be able to do this what is the biggest drawback or the disincentive for russian companies solicit oh my. i think probably the easiest way to answer their question is if you look at the my sites and their sales combined they probably do about five

hundred billion worth of trading in you mean if you look at just the london stock exchange you're looking at a two point seven trillion. cash flow through through their particular. exchange and i think that once again the liquidity of the stock that is being traded publicly in a western exchanges. is a trader premium you have the opportunity to lead or if you want to increase your debt as well to do it in a cheaper rate then you would with with a russian listing obviously you also have the opportunity to be indexed some of the western or 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 were you given how much better opportunity to work to attract better investors. would you add anything to. the big difference between the russian market and the western market

is the quality of the investors and you have a very deep pool of investors pension funds insurance funds are in for the long term 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 i mean the whole institutional investor segment of the market here is completely missing and consequently most of the investors in the russian market pranks 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 having a good year it goes shooting up but it's sort of one in every ten years it goes it goes south and then we can do seventy five percent of its is there i mean so it's a quality of investor that russian companies are looking for when they go abroad the long term their number before we go to break anything to add to that. i think that's pretty much right it's all about stable base investors which you can attract overseas and so far in russia you know pension form reform will change that once

you get to nest invest in russia they'll be buying russian stocks long term doing their own due diligence so i think that's the challenge for russia to put up those long term interests 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. . you delete something. from. the. wealthy british.

market why not. find out what's really happening to the global economy. 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. . russian companies themselves to the market but internationally still need to have both a solid business case and a commitment to sell in that business case to meijer investors of course and restless cannot get away. and that was true so it's or just but then it will become. all the best risk making their own decision.

for the management. to raise questions. as well as capable. of course. organized professional world always looking for success over russian corporate culture has come a long way in the last decade the least in process can still be quite challenging for corporate culture transparency as a preparedness or alters of the business here nor there. sort of our open we talk about their ownership structure which sometimes continues to be in motion in the in the company it was called out and what beneficiaries of the business to disclose the. sort of stuff that's usually was kept there we from the public eye so it was there is a huge cultural change for the russian business in general regardless of the weight of the worsening companies making the effort to list then have access to funding for they become pockets of major global centers it can't traction for international

listing there is a obvious interest from our russian investors but there are financial markets that you are a series of brought in but it's to your much a wisdom to do with what presidential markets in the world saw was the moment or for the best of. management you know russia. not this significant person typical. financial centers like us you are all program asian the more companies listing creates more of a market and this is in turn makes it easier for all of the companies to consider the same step i think it is important. it is important because it provides a broader view of the even just reinforce that are outside market participants the transparency of the market the amount of work we did here in the market actually creates a market that's of if you have just two corporations with the people don't have

a visibility as there is no market but killen in the market remains a key with the global outlook still seem desperate carious russian companies looking to place equity need to get their list in process right there in the if it were only mine r.t. . ok now if i go back to you it's interesting we put us all into a global. and 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 is all the time as well i mean how does the how do how do russian companies go out in market themselves with this tsunami going on in the world. what i think of the moment the full of this global volatility is name i will see play fable two russian two russian compound

this because i think it's russian is still as i mentioned seen as more of a dream and a quantum man quantum could brew and i could a story so as a result i think as the moment of the fact of having prices skyrocketing things to this you know middle east developing. north african and global world instability this is rather how many russian companies to present themselves because i think here as opposed to pre-crisis store while pre-crisis russian companies was positioning himself as you know companies willing to diversify companies willing to go to new markets in his wounds to increase their competitive advantage i think right now we do well first we'll have a lot of fight your second there because we have seen this year these are companies which wanted to preserve the shares for investors already sometimes so i think at

the moment this is rather. than this which we're already willing to come to see investor sentiment just using global environment and this is definitely the moment playing favorites russia but i agree completely when oil prices will go down then we will see progress verified through verse of sentiment and this is probably the reason which is now since i come from this to this arc your process then you know the time just came to my mind isn't it i was speaking russian it in its i.p.o. as being a flight to quality i mean little solace volatility i mean russia looking. russia and additional reason to make it look attractive i mean if you remember in the spring of two thousand and eight as a subprime crisis as a mining russia was billed as a safe haven of course the crisis hit russia a lot harder than anyone was expecting way back in the same position i mean them. for a fundamentalist of the country a rock solid is 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 them 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 thing we haven't touched on is. unlike the other emerging markets it's still traded a heavy discount the valuations are still much lower than in all the other emerging markets and yet over the last ten years russia performed every other emerging market by a factor of four of the last decade russia with. 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 the consumer stocks they traded very expensive but again it's a specialist and since it's not widely known and in the meantime we're still

dependent on what happens to your price which dictates the sentiment. it's been mentioned already on this program which is going to be a whole slew of profit is probably companies coming out is this going to be more attractive to foreign investors because we still have spare bank there or 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 sorry for all the metaphors but how important is this i think of the key for the investment climate here makes it clear the government believes in the markets it believes in in in external finance in equity investors and i think that is a very strong underpinning for russian equities. in general this understand the dog . it's they understand the importance of actually markets and financing for companies that companies will be able to raise capital and put more quickly and

economic growth in russia so i think everyone if one wins here 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. k b p ongoing affair where we're brass nearest we. are all cynical. i mean these make the 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 it 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 these business building companies and there's a lot of opportunity they look at the west as a moral status quo people to establish themselves and their nieces and backless force at street level in terms of marketing and consumers whereas here everything to play for you countries to capture markets to end. consolidation process.

and so you know we're still very much in the swashbuckling. and that leads to corporate of. tell you if i'm going to go back to you is that when we look at companies going public is the russian government doing the right thing is the ministry of finance doing the right thing i mean when 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 is the state doing the right things to help companies go to market. well i think if we're thinking about russia let's say comical garments pull symptoms of promote if a national market developments we hear a lot of right things like very recently written that if a couple of years ago had

a very intensive discussion involving the create a global financial center in the russia there is the whole of the wounds to 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 i think is the result of riots indication and the right. indications in aus nz how was that in terms of implementation i think there are always a question because we all understand that to do with corruption to improve the legal system or even or to create the national center in russia this requires a lot of time this requires a lot of efforts this requires a lot of systemic changes and these changes will not just come with sudden to more assessing there is definitely the wounds from the government side to to help russian come to sooner and the privatization by the way this is the good indication

because my crewel ties in the cabinet will definitely improve the level of competition and the quantum it and in the way will how. will the aggressive and competitive companies to to improve their investment case but i think will still have to wait for the maybe more serious side science in precise in terms of implementation of all these ideas. and 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 markets. at this point in time where they need to do which most importantly. transparency and some kind of track record if they can prove that they can grow some kind of stress tests they can explain how they would react and different in different conditions i have a great growth story people want to invest in russia because of growth so it's a story. gary said 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 that's relative subset macroeconomic factors and history factors are important but i would agree with you 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 motivational question going to the i.p.o. when 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 that will most likely be for two thousand and twelve ok looks like we ended on a very bullish note 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 stayed with our team. to.

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