the future of coverage. four thirty pm in moscow these are your r.t. headlines the u.s. stop sanctions on syria's political elite as the brutal crackdown on protesters in the country continues some analysts say washington's policies are only aggravating the situation iran's revolutionary guard has also been sanctioned for allegedly supporting the crackdown. the russian activists sound the alarm over a vicious and policing in the army which is claiming more and more young wives soldiers mothers say officials aren't doing enough to stop the little practice.

plus new york authorities cashing in by policing the people thanks to a series of new regulations and fines for petty crimes that make apple smokers among those hardest hit will soon become a legal term in many parts of the city. more on these stories and more in thirty minutes time up next though peter bella talks money and business as he explores the difficulties russian companies face in foreign exchanges on the money coming your way next. hungry for the full story we've got it. the biggest issues get a human voice face to face with the news makers on the party. hello in welcome to on the money with the business of russia his business i'm peter all of well today we're talking about russia on arbre russian companies and initial public offerings. discuss this i'm joined by your salter here in the

studio with me here is chief eat any equity strategist unicredit securities we also have denise would cost c.e.o. it's see as annoyed group of companies ben heiress he's editor in chief of business new europe and natalia orlova she is chief economist at alpha 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 a pos 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 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 into doesn't seem to 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 sites will come into the market

people want to get exposure to this pos 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 of once bitten twice shy so the investors at this point are doing a lot of due diligence into the companies they're investing in their breath and so on 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 russia. so people are a little careful a lot more sophistication of this occasion but what makes a mistake that they made in the last in the last will go to tell you if i can go to you last year the whole story was about barnes in a little bit into this year with this change why all of a sudden interest in russian equities. well i think this year and basically start the end of two thousand and ten with definitely since the increase in the oil prices which is usually done as russian economy is still very much based on income or that there. are fresh and i quit this i think these definitely.

perceptional for international investors for the russian companies and this was really a problem as they are arguments for the russian companies to think again that gold was as opposed to you know campbell gold market which will cease previous years also i think if this milk wind is a privatization release which was announced by the russian government quite recently so i think a while that in terms of privatization of where mainly talking about also only few companies would be offered fried caused by by the government but still i think this privatization at least. improved in the also increasing interest or rule interest for the russian market so this is definitely seen as we go forward curator for the non-state russian companies also present the story for them that's what's interesting is how you get really ahead of me because i want to talk about privatization later bit denisof i think when what are companies thinking about when

they're mowen i.p.o. again we daniel gave us 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. no peter i think the first thing that companies are looking at is what state are they in currently can can they actually fully organize an i.p.o. that word will they go a different route of reason reason cashless or for their business and 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 for say for us accounting then i.p.o. is definitely a much better option i think the companies are also looking at what is the inherent motivation meeting and what splits do they 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 or kind of a 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 what 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 it's a 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 of the market something on the order of two trillion dollars half of that is russia daily 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 that depth of the markets gives companies here the option of raising significant amounts of money so companies like an essence know if they want to go abroad they can raise money but there's also the option of doing it domestically and that's

a huge advantage i mean companies that are looking to expand it need money cash to invest they can tap into mystic market if they need to daniel recently there's been a lot of commentary that russian companies are in 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 i'll 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 this is a 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 my peers in russia some of them have cuts the price range some but have priced it at the bottom of the range so i think up is accepting 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 road show because this is something relatively new for russian companies i.p.o.

even as you know for a lot of russian companies how important is the road here 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 to show 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 so this is actually right i think you know companies need to start a relationship over the long term with markets 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. prospectus for resell it was one thousand one hundred forty one pages long so there's a lot of detail that's going on but you know it's much better to be the company face to face really understand what the management is like how that gets delivered the 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 identifying go to it has the perception of dealing with russian companies changed

on the one hand we're looking at foreign investors in the way russian companies are going to market now what is one of the russian companies fighting 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 a visible and transparent as possible to the western investor i think obviously corporate governance is a very difficult issue for for most russian companies to overcome i believe. disclosure is something that's also very difficult for a russian companies to get a hold of the name of but i think more and more you will see that the russian companies that are. looking at this thing and have missed it so for have found it a very useful exercise and in their benefit 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 shareholder interests given the fact you have a shared plan that you can offer to. your employees so i think. you see 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 difficulty because you didn't get what you called dennis 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 me 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 the russian companies solicit oh my. i think probably the easiest way to answer their question is if you look at the my six hundred thirty s. 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 the 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 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 in 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 given a much bigger opportunity to work to try to better investors bend 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 firms who are in for the long and that gives a basis to your stock price go those guys hold and wait for the company to mature the problem with russia or is that so the markets are 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 or what have you and they have a very short term 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 over one in every ten years it goes it goes south and then nicolas thirty five percent of it is rightly so it's a quality of investor the russian companies looking for when they go abroad long term yeah 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 you can even try to have a season so far in russia and a pension for reform or change that once you get to in the us and russia they'll be

buying russian stocks long term doing due diligence so i think that's the the challenge for russia to put up those long term investors we have to go to a break in after that short break we'll continue our discussion on russian i.p.o. stayed with r.t. . to. wealthy british style.

market why not. find out what's really happening to the global economy with a much stronger no holds barred look at the global financial headlines. is a report. twenty years ago in large this country. to some to. see. what did the. janitor and. where did it take. to. welcome back 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 particularly international listings need to have both a solid business case and a commitment to sell in that business case to major investments. and rest can walter white one well. and that was to research or close to or the company so for all the investors making their own decisions most of which is probably one of the was not synced with the management. to raise questions on the management but it's capable. of course. organized professional world show always looking for success over russian corporate culture has come a long way in the last eight kate fill. the process can still be quite challenging the corporate culture transparency is the preparedness of that warners of the business you know to come sort of out openly and talk about of the ownership

structure which sometimes continues to be in motion in the in the company you could have called out in the beneficiaries of the business to disclose the. sort of stuff that's usually was kept their way of the public eye so it was that is a huge cultural change for the russian business in general regardless of the weight of the worst thing companies making the effort to list then have access with the funding for the deep pockets of major global centers a kid traction for international listing there is a obvious interest from the russian investors a. financial market. is growing but it's still a much a wisdom that you were put on until markets in the world sort was the model both for the rest of. the management in russia. or purse a significant person in the typical. financial status to work or u.s.

europe or in asia the more companies listing creates more of a market and this is in turn makes it easier for other companies to consider the same step i think it is important. it is important because it provides a broader view or the industry for the outside market participants as a transparent stones an arc of the amount of work we did some of the market actually creates a market for itself if you have just two corporations list that people don't have a visibility is there is no market button in the market remains a key with the global outlook still seem to speak areas brushy companies looking to play stepped within need to get their list in process right iran though the only money r.t. . ok mattel if i go back to you it's interesting let's put this all into a global environment here we have

a lot of volatile volatility when it comes of our 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 it how do russian companies go out in markets themselves with this tsunami going on in the world. but i think at the moment the full of this global forward to it is name i will see play fable to russia and russian companies because i think it's russia still as i mentioned seen. one of the group a clone and then i wanted to draw and i quote the story so as a result the scene at the moment the fact of having prices skyrocketing things to recede in the middle east developing. north african and global world instability this is rather how paying russian companies to present themselves because i think

here as opposed to quick rise the store while pre-crisis russian companies was positioning himself as you know companies willing to diversify companies willing to good living new markets companies wombs to increase their competitive advantage i think right now we do well first we don't have a lot of hype your second there because we have seen this year these are companies which wanted to present their shares for investors sometimes so i think at the moment this is rather. than this which you were already willing to come to see investor sense just using global environment and this is there from at the moment playing favorites russia but i agree completely when oil prices will go down then we will see probably have arafat reversed or sentiment and this is probably the reason why his now group system causing this to be done this i.p.o. process then you know the founders came through my mind is an italian speaking good

russian it in its i.p.o. is beautiful a flight to quality i mean little solace knowledge really i mean russia looking. in makes russia an additional reason to make it look attractive. and if you remember in the spring of two thousand is the subprime crisis was a mining russia was billed as a safe haven of course crisis hit russia a lot harder than anyone was expecting and now we're back in the same position i mean the. on a mental so the country rock solid tiny day 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 sort of it 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 more than half of the g.d.p. and one something we haven't touched on it is that unlike the other emerging markets it's still trading 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. seven hundred percent and the next best performing market was china we're just under two hundred percent and that's based on the earnings and the end is that based on 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 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 daniel thank you and we mentioned already on this program it is going to be a whole slew of private is privatized companies coming out is this going to be more attractive to foreign investors because we still have spirit 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 and is that going to be something that would be you know in the tsunami story 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 external finance in equity investors and i think that is a very strong underpinning for russian equities actually but in general business understand the government. it's they understand the importance of actually markets and financing for companies that companies will be able to raise capital and more quickly and thus the economic growth in russia so i think if you are if one 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 all the corporate wars in the corporate boardrooms we have the. k b p ongoing affair where we're brass we. are all cynical 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 large companies and there's a lot of opportunity to look at the west there's a moral status quo people are established themselves and the back of this force is street level and in terms of marketing and consumers whereas here everything to play for you countries to markets to end. consolidation process that's going on and so you know we're still very much in the swashbuckling. development and that leads to corporate conflicts. tell you if i'm going to go back to you is that 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 we have to mention the word corruption in things like this that are still in play here are they do is the state doing the right things to help companies go to market. but i think if west thinking about russian economy could comment posts in terms of promoting financial market developments we hear a lot of right things like very recently written out if a couple of years there in terms of discussion and all can i create a global financial center in russia there is the whole of the room the stream prove the regulation of financial markets there is the understanding that this improvement of regulation go hand in hand would be improvement of the legal system so i think the result of rights indication and the right indications in now since how was it in terms of implementation i think there are always

a question because we all understand the to do with corruption to improve the legal system or even you know to create the world financial center in russia 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 sudden to morris so i think there is definitely the wounds from the government side to her to help russian come to the center and the privatization by the way this is the good indication because my crew ties in the cabinet will definitely improve the level of competition and require me and then we will help in . the aggressive and competitive companies to improve their investment case but i think we'll still have to wait for them maybe more suicide science 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 markets

in foreign markets or just one time but we need to do which most important thing. transparency and some kind of track record they can prove that they can grow some kind of stress tests they can explain how they were jackson different in different conditions and the great growth story people want to invest in russia because of growth so it's a story. 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 around us i was america cannot work factors and history factors are important i would agree with. i think it's a story you can tell it's the history of the allows you to prove that the story can be fulfilled it's the proper motivation of actually 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 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 on the money see you next time and stay with our.