Undeterred by the sub-zero temperatures, delegates turned up in their droves to February’s Russian IR conference hosted in Moscow by IR magazine and OSSI, the Russian investor relations society – proving that since IR magazine’s original conference and awards in 2004, IR is still hot in Russia.
The increasing number of Russian stocks looking to list overseas to expand their investor base is driving demand for greater IR savvy, and Russian companies are also realizing they need to step up their investor relations activities within domestic markets in order to attract local investors.
In his keynote address, deputy head of the Federal Financial Markets Service (FFMS) Sergei Kharlamov remained positive about the future of IPOs, despite recent negative press. He alluded to the changes made in December 2005 to formalize IPO endeavors, which notably helped Rosneft’s flotation on the London Stock Exchange (LSE) last year. Kharlamov was encouraging about Sberbank’s IPO, which some media reported as being on the rocks.
Tricky IPOs
Later in the afternoon, experience related how Russian IPOs have not always been easy. Marina Nacheva, head of IR at leading heavy industry group OMZ, explained how the group’s initial listing on the LSE in 2003 did not quite go to plan. ‘It didn’t help us build liquidity – we should have made additional share issues,’ she commented.
Evan Boiko, head of IR at MDM Bank, said the bank had abandoned its idea of a domestic IPO in 2002- 2003. ‘We decided there was no need for additional capital and preferred to wait for anticipated growth in the banking sector,’ he explained. Although difficulties have been linked to investors buying banking sector stocks, this has not deterred government-owned VTB Bank from attempting an IPO, as Natalia Loginova, vice president of the bank’s debt and trade finance division, confirmed.
Collective investments were another focus of Kharlamov’s address and the FFMS is working toward promoting them to Russian retail investors. Last year the volume of investment funds doubled to reach 641 and the number of market shareholders rose to 350,000. Kharlamov said he expects most Russian households to become investors through mutual funds, though he admitted there is a way to go before Russia catches up with western markets.
Unplowed fields
Russia’s stock exchanges are developing so quickly that Russians have not had time to think up their own terminology. ‘We refer to transparentnost and IR,’ laughed Marina Medvedeva, vice president of the Micex Stock Exchange. She dispelled the myth that Micex comprises only Russian investors, pointing out that last year 24 percent of traded shares were held by non-residents.
Although Russia has a well-developed bond market, Medvedeva admitted improvements could be made on stock numbers. ‘Micex has all the major blue-chip firms – Gazprom, Lukoil, Rostelecom – but we need to expand into the second echelon and attract as many issuers as possible,’ she said.
Medvedeva also pointed out discrepancies in reporting standards. ‘While leading companies with ADRs traded in the West have much the same approach as their international counterparts, the second tier has good stock but is unprepared for the international market,’ she noted. ‘It’s an unplowed field with huge potential.’
From IR to DR
Debt relations (DR) proved to be another hot topic at the conference. As Irina Kibina, head of IR at Evraz Group, indicated earlier in the day: ‘IR should be an ongoing dialogue and it doesn’t matter if the company is public or private if you have entered the debt market.’ Debt is growing in importance as Russian banks strive to fend off competition for investors in debt deals. When Elena Ershova arrived as head of DR at Alfa-Bank in 2005, financial communication was non-existent at Russia’s leading privately owned bank. ‘As we issue more Eurobonds, we have to go to market much more frequently,’ Ershova commented.
Previously, investors in Eurobonds were mainly from the UK, Germany, Switzerland and Asia, but Ershova described a new initiative undertaken by the bank last year to attract investors from the US and the Middle East.
Tides of change
Even the most experienced IROs, such as Dmitry Zhdanovich, head of IR at Gazprom, admitted the importance of being flexible and open to change. ‘In light of increased competition in Russia, we need to be constantly rethinking ways of disclosing information to investors,’ he stated.
Zhdanovich said he previously presumed it was better to give the most detailed information possible. ‘One day we produced a rather simplistic brochure more aimed at informing local retail investors than large-scale corporates, and we were surprised how popular it was with all our investors,’ he recalled. ‘We discovered they preferred glancing over a brief and accessible summary to wading through reams of detailed information, so we adapted accordingly.’
An important change in the world of Russian IR, recently pushed for by the Russian securities commission, received Zhdanovich’s seal of approval. Since February 2 all financial information for Russian companies listed overseas must be disclosed not only to foreign investors, but also to local investors.
‘This is good news because it places Russian markets on more of an equal footing with the international markets,’ commented Zhdanovich. ‘Russia has trillions of dollars, but it needs to be encouraged to invest that money to further boost the economy.’
