this is the arts international news channel thanks for being with us and stefano in here tonight updating our top stories first the u.s. stop sanctions of syria's political elite as the brutal crackdown on protesters in the country continues and some analysts say washington's policies really aggravating the situation this is a rans revolution regards also been sanctioned for allegedly supporting the crackdown. russian activists sound the alarm of a vicious bullying in the army that's claiming more and more young lives soldiers

mothers say fishes aren't doing enough to stop the practice. and new york authorities cash in by policing the people thanks to a series of new regulations and fines for petty crimes the big apple smokers are among those hit hardest says it will soon become illegal to tough in many parts of the city. up next pain level talks money and business as he explores the difficulties russian companies face and foreign exchanges. just ahead. hello in welcome to on the money with the business of russia his business i'm peter all's well today we're talking about russia on arbre russian companies and initial

public offerings. discuss this i'm joined by again your salter here in the studio with me he is chief eat any equity strategist unicredit securities we also have denise would cause he is c.e.o. it's the aus annoyed group of companies ben arus he's editor in chief of business new europe and in italia 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 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 as we're seeing 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 it's a dozen 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 sites will come into the market people want to get exposure to this prospering country to these new sectors and they played 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 the investors at this point are doing a lot of due diligence into the companies they're investing in that way since one valuation and there's a bit more competition so. company's 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 of the situation but it was made certain mistakes that they made in the last in the last will not to tell you if i can go to you last year the whole story was about barnes a little bit into this year what does change why all of a sudden interest in russian equities. i think this year and basically starting end of two thousand and ten will definitely have seen the increase in the oil prices

which is usually going on as russian economy is still very much based on core the. russian i quit this i think these that's only proves that perception or for international investors for the russian account of this lease was really their arguments for the russian companies to think again that gold was as opposed to you know think and all gold market which was he's previous years also some conditional coins is a privatization lease which was announced by the russian government quite recently so i think a while in terms of privatization of where i mean we are talking about also only a few companies will be offered five caused by by the gone but still i think this privatization at least. improved in there also increasing interest overall interest for the russian market so this is definitely seen as window of opportunity for the non-state russian companies also to present their story for them breasts what's

interesting is how you get really ahead of me because i want to talk about privatization later but then it's if i can go to you when what are companies thinking about and their mo in an i.p.o. again 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 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 they actually fully we're going to use an i.p.o. or will they go a different route of raising reason cash necessary for their business expansion there's always the option of private placement there's always the option of that but if a company is in a sophisticated state of it's a management structure and basically following some of the recommended principles of 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 split the two between primary and secondary is a basically a cash out or is that basically a cash that's necessary to fund the operation or work 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 what are 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 market something on the order of two trillion dollars half of that is russia daily trading audience here in the billions of dollars where is somewhere like ukraine which is the next biggest market there in the tens of millions and the depth of the market companies here the option of raising significant amounts of money so companies like

and its noise if they want to go abroad they can raise money there but there's also the option of doing it domestically 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 daniel recently there's been a lot of commentary to russian companies when the i.p.o. some of been withdrawn or pricing themselves too aggressively i mean look 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 that in the past however there's a price for everything so you know the investors or 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 russians were too aggressive but it's changing now if you look at the most recent five years in russia some of them have cuts the price range some of them have priced 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 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 so i mean ip oing is new for a lot of russian companies how important is the road because it's not 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 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 that's exactly 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 diligence going on but you know it's much better to meet the company face to face really understand what the manager 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 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 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 visible and transparent as possible to with 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 russian companies to get hold of paying off 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 a very useful exercise and in their management structures. that 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 plan that you can offer to. your 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 and difficult in addition to what you call 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 made bed it 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 to listen 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 in you me if you look at just the london stock exchange you're looking at the two point seven trillion. cash flow through through that particular. exchange and i think that once again the liquidity of the stock that is being traded publicly you know western exchange is. traded in a 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 a russian listing obviously you also have the opportunity to be indexed some of the western indexes so i think it's it's not only. it's not only to show that you can list in a western country it's also the fact that you were given what's better opportunity to work to attract 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 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 so 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 on the russian market planck's 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 if you're shooting a person but it's over one in every ten years ago as it goes south and then you can lose thirty five percent of it is rightly so it's a quality of investor the russian companies are looking for when they go abroad long term then right before we go to break anything there that. i think that's pretty much right it's all about stable base investors which you can even try to

seize and so far in russia you know pension reform will change that once you get to misunderstand russia they'll be buying russian stocks long term doing their own due diligence so i think that's the challenge for russia to pick up there's long term investors we have to go to a break in after that short break we'll continue our discussion on russian side he'll stay with r.t. . we'll. bring you the latest in science and. from. the future of. your social. life.

from the. dot com. welcome back to on the money i'm peter lavelle and we're discussing the 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 brand themselves to the market particularly international listings you can have both and so the business case and the commitment to sell in that business case to major investments. investors cannot feel why it was. always

going to so much work because the world has been the company so all the best first making their own decision was based on one of the musics with the management. to raise questions on this. one that's capable. of course. for all but organized professional world for always looking for success over russian corporate culture has come a long way in the last decade the least and crosses can still be quite. challenging the corporate culture and the transparency of the preparedness of the orders of the business and you know to come sort of our open we talk about their ownership structure which sometimes continues to be in motion is there in the company in terms of cause ultimate beneficiaries of the business to disclose the. sort of stuff that's usually was kept away from the public eye so it was that is a huge cultural change for the russian business in general regardless of the place

of the estate companies making the effort to list then have access to funding for the deeper pockets of major global censors it kid traction for international listing there is a obvious interest from our other russian investors but the financial market you are sure is brought in but it's to your much a wisdom with the will of the uninformed markets in the world store because they want to offer the best of. management you know russia. or not there's a significant person in the typical. financial central select u.s. euro proclamation 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 industry for their outside market participants the transparency

of the market the amount of what we did here in the market actually creates a market for itself and if you have just two corporations list that people don't have a visibility as there is no market for the killam in the market remains a key with the global outlook still seem desperate carious russian companies looking to play stick with the need to get their list in process right now rand though they can only money i think. ok now tell me if i can go back to you it's interesting we put this all into a global environment here we have a lot of volatile i would tell anyone it comes to oil prices we have vents 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 how do russian companies go out in market themselves with this tsunami

going on in the world. well i think at the moment the fall of this global volatility is near i would say of clay favor to russia and to russian companies because i think it's russia still as i mentioned seen. more that agreement a quantum in quantity grew and i quote the story so as a result i think at the moment the fact of having or oil prices skyrocketing thanks to receive in the middle east developing south or north african and global world instability this is rather how keen russian companies to present themselves because i think that here as opposed to pre-crisis store while pre-crisis russian companies was positioning themselves as you know companies willing to diversify companies willing to go to the new markets to increase their competitive advantage i think right now we well first we don't have

a lot of fight you all seven there because we have seen this year these are companies which wanted to present their shares for investors already sometimes so i think at the moment this is rather the window for booking to for this which we're already we want. 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 probably have verified through verse or sentiment and this is probably the reason which is now due says some companies to 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. to be a flight to quality i mean little solace volatility i mean russia look that's what makes russia and additional reason to make it look attractive i mean if you remember in the spring of two thousand and eight as the subprime crisis was 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. fundamentals of the country are rock solid it's got a 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 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 more than half of all g.d.p. and one something we haven't touched on is. unlike the other way 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 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 end is

a post on consumers and so people are slowly getting to know this or if you look at consumer stocks they're very expensive but again it's a specialist investment is not widely known and in the meantime we're still dependent on what happens to your price which dictates the sentiment ok again you'll find out here we go it's been mentioned already on this program that there's 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 are you 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 the key for the investment climate here makes it clear the government believes in the markets it believes in it in external finance in equity investors and i think that is

a very strong underpinning for russian equities box in general this understand the government. it's the understand importance of x. in markets and financing for companies that companies will be able to raise capital and put 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 more protected ect environments then if i can go back to you there's always the issue of corporate wars in the corporate boardrooms we have the. k d p ongoing affair which will cross the aft 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 economy fast growing these companies these businessmen building large companies and there's a lot of opportunity if you look at the west there's

a moral status quo people who have established themselves and their leashes and backless force at street level in the terms of marketing and consumers whereas here everything to play for you countries to actually markets to end you've got 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 when we have to mention the word corruption in things like this we 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

canonical government course in terms of the promoting financial market developments we hear a lot of right things like very recently written about if a couple of years ago had a very intensive discussion about you know create a global financial center in russia there is the whole of the wounds to improve the regulation of financial markets and there is the understanding that this improvement of regulation should go hand in hand with the improvement of the legal system so i think there is a lot of indication in the right indications in our students 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. a systemic changes and these changes will not just come are you know it was sudden two more assessing there is definitely the wounds

from the government side to her to 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 quantity and he 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 precisely in terms of 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 for market share just one time when they needed it which most importantly. transparency and some kind of track record they can prove that they can grow some kind of stress tests they can explain how they would be different in different market conditions other great growth story people want to invest in russia because of growth so ok story. danny so 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 right us obviously macroeconomic factors and history factors are important but i would disagree with daniel saying 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 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 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

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