Clever Geek Handbook

IPO on the Moscow Exchange: why it is needed, who conducts it and how to buy shares





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On the network you can often find stories about how companies entered the stock exchange and conducted an IPO, as a result of which the founders of the business became billionaires. Almost always, foreign exchanges appear in these stories, mainly from the United States, however, an IPO (and then SPO) can also be carried out in Russia. Today we’ll talk about how and why companies place their shares on the Moscow Exchange.



Note : investments on the exchange are associated with risk, it should be remembered. In addition, to perform operations with shares of companies on the Moscow Exchange, you will need a brokerage account. It can be opened online at this link . You can also practice operations and study trading software using a test account with virtual money .



What is an IPO?



If a company reaches a stage of development at which it needs external capital for further growth, then one of the ways to attract it is to place shares on the stock exchange through the IPO (initial public offering) mechanism. In this case, the company becomes public - anyone can buy shares.



In addition to attracting live money that can be invested in new projects, the IPO has other advantages. For example, a company can offer top managers not only salaries, but also stocks, luring the best specialists. Also, the placement of shares usually has a good effect on the image of the company - because this means that it has reached a certain, very high level of development.



But not everything is so smooth, and obtaining the status of a public company entails a number of difficulties. One of the main ones is the need to disclose information about the company. Public companies are required to periodically publish financial statements that show the success or failure of its activities and can seriously affect the price of shares traded on the stock exchange.



In order to meet the various requirements of regulatory authorities and successfully pass regular audits, companies need to make serious efforts, the costs of which may be too substantial for not the largest business.



Not Only IPOs: Secondary Offers



The exchange does not only carry out initial public offerings. There is also the concept of SPO (Secondary Public Offering), in which a public offering of shares owned by existing shareholders is carried out. This step allows you to increase the number of shares in free circulation (free-float) without issuing additional shares and without depreciating them. Thus, the liquidity of the company's shares is increased and investor interest in them is stimulated.



Why carry out IPO / SPO in Russia



Foreign exchanges usually carry out IPOs for companies that need to develop abroad, for some reason it is important to have foreign investors, or their management is confident that it will not be possible to attract enough money in Russia.



If the company believes that it will be able to receive a sufficient amount of investments at home and does not have any special interests abroad, the process of preparing an IPO / SPO at home can be quite justified. One of the main reasons is the cost of the whole process.



A company can prepare an IPO on its own, but usually, investment companies (underwriters) are hired to prepare documents, coordinate them with regulatory authorities and work out technical issues (share price, placement volume). It is clear that in Russia all the costs associated with conducting an IPO - the services of underwriters, various state and exchange fees and commissions - ultimately turn out to be lower. The entire preparation path usually takes from several months to a year.



How to prepare an IPO



The process of preparing for an IPO is not an easy task, which takes from several months to a year and costs the company serious funds. It is quite difficult for the business to organize the process on its own, so there is a need to hire an investment company (or several) that will be engaged in pre-training. Such investment companies are called IPO underwriters.



After choosing a bank, representatives of a financial organization and company management agree on the parameters for future placement: the price of shares to be issued for free circulation, their type, and the total amount of funds to be raised.



Following the negotiations, an agreement is signed. After that, the underwriter transfers the investment memorandum to the regulatory body of the country, on the exchange platform of which the shares will be placed. In the USA it is the Securities Commission (SEC), and in our country it is the Bank of Russia.



This memorandum contains detailed information about the proposal and the company - financial reporting, management biographies, existing legal problems of the organization, a list of current shareholders and the purpose of attracting financing. After that, the submitted data is checked, if necessary, additional information is requested. If everything is correct, an IPO date is assigned.



Examples of successful placements of shares and bonds



IPO and SPO are regularly held on the Moscow Exchange during which companies offer investors their stocks and bonds, here are a few successful examples of such placements:





These are far from all examples - business media regularly compile collections of the most successful Russian IPOs. We at ITI Capital help companies organize IPO / SPOs in the Russian stock market.



Not so simple



The management and investors of companies planning an IPO should remember that the status of a public company provides not only advantages, but also imposes some restrictions. One of the main "minuses" is the need to disclose information about the company. Public companies are required to publish financial statements about their activities - indicators in these documents may affect the value of shares traded on the stock exchange.



In addition, regulators (in the USA - SEC, in our country - the Bank of Russia) conduct audits and closely monitor the activities of public companies. The cost of meeting these requirements can be very significant.



In addition, publicity leaves a certain imprint on the company's activities - investors and shareholders are waiting for the growth of indicators and, as a result, the price of shares. This may lead to the fact that the manager will begin to pay more attention to short-term goals, rather than solving problems that can ensure long-term growth.



However, despite some difficulties, an IPO (and then SPO) on the Moscow Exchange is an effective way to raise capital, and therefore an opportunity for business development.



Useful links on the topic of investment and stock trading:





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