Fly in-buy shares of innovative and growing companies!

Pipeline for young issuers
Konstantin Ilyushenko, Deputy. Editor-in-chief "D`"Interview with MICEX Vice-President Gennady Margolit about the innovation and investment market, which should become a pipeline for attracting financing by young companies and obtaining promising assets by investors.

The Innovation and Investment Market (RII) of the MICEX Stock Exchange is being created jointly with the Rusnano State Corporation, which, by investing in projects, will bring shares of some issuers to the exchange. The new market will include the already existing IRC sector (innovative and growing companies), where shares of four issuers are currently traded. In addition, the IRK-2 sector will appear for closed (private) placements among qualified investors, and an information portal (Board) will also be created.

According to Gennady Margolit, up to five placements may take place before the end of the year, but the main goal of RIA is to work for the future. And the exchange will get its due when young companies become "blue chips".

Issuers and investors– There was information that Rusnano could bring about 30 companies to the stock exchange by the end of the year.

Is there a pilot project already?– I do not know where these numbers come from.

30 companies is an unimaginable figure for Russia. Suffice it to say that when there was an IPO boom all over the world, only a hundred Russian companies announced a possible IPO. In reality, they took place much less.

Now we have an important stage of testing new technologies. It depends on how the first placements will take place, whether the pipeline created to bring enterprises to the stock market will work or not. We focused on a narrow group of five companies. It is impossible to guarantee that all of them will enter the market before the end of the year, but I hope that two or three of them will be placed.

– Can you tell me which ones?

– No, I can't name anyone except the Human Stem Cell Institute. About the rest, we can say that they meet the requirements of the exchange, belong to innovative industries and represent a really working business that is interesting to investors. We have already arranged the showings.

– Are potential investors Western funds?

– It is definitely impossible to say so. These are institutional investors – private equity (private equity funds), hedge funds and private investors.

It is easy enough to reach the institutionals. These are, as a rule, Russian funds or Russian-based foreign money. There are foreign funds that are interested in Russia and have investment experience. You can offer them all something.

Private investors are an interesting category, perhaps not fully studied, but we see and feel it. And we think that the RIA sector will be developed to a greater extent by them. The difficulty lies in the fact that they are unorganized, but we will create a website (Board), which will become the core for the formation of a community in the form of a social network. It will become our marketing tool, a tool for consolidating the interests of the parties. Taking into account the capabilities of the MICEX, this will allow building a dialogue between the state and the market, making recommendations and lobbying measures to facilitate access of enterprises to financing, and investors to assets.

– And such private investors as Mikhail Prokhorov do not come and say: they say, I want to buy, wrap it in a piece of paper?– Private investors in this case primarily mean wealthy citizens with free capital from $1 million to $10 million, although we do not exclude individual negotiations with individual wealthy people.

– Is your interest in private traders an increase in liquidity at auctions?

– Yes, private traders are interesting because there are a lot of them. And the fact that it is clear why they need an exchange. They respect the MICEX brand, and this is our natural advantage. We are concerned about liquidity in the secondary market, and the wider the placement, the easier it is to organize it. Because if several funds bought a block of shares, then there may not be a secondary market. But here, as it happens, there is no discrimination. The main thing is to help the company get financing, and we we will take our own, even if there is a closed placement among strategic investors in IRK-2. Sooner or later, a young company will mature, strategic investors will exit its shares (exit), a secondary market will appear.

– Will a separate "glass" of quotations appear in IRK-2, to which brokers will allow only qualified investors?
(In 2008, the FSFR amended the law "On the Securities Market", according to which qualified investors have great opportunities for investment. The qualification criteria are based on the size of the investor's assets and his trading turnover for a certain period.)– Yes, there is a rule all over the world to restrict the market of young companies from mass investors.

This is normal logic, and we agree with it. And the companies themselves are also more comfortable when there is no fast speculative market, there is no excessive price volatility. For example, funds are annoyed when the stock price starts to jump.

Price and world experience– The success of the Polish New Connect market is interesting.

– Yes, now more than 100 issuers' shares are traded in this sector.

The Poles surprised everyone: small companies are located with them even in the midst of the crisis.

We have differences in mentality with them. In Poland, the period of socialism was much shorter than in the USSR, and it was not so total – small business has always existed there. They have a different nature of entrepreneurship: there are a lot of small and medium-sized businesses that are not built into large holdings. Therefore, there is more potential there, but it is short-term. They have a lot of advanced businesses that are not afraid of openness, are ready to enter the stock exchange, let third-party people into the company's capital. And they have the effect of success stories. A series of successful placements took place – and many wondered what they could try. We are also counting on this effect, if everything goes well. Perhaps convincing examples of a lifestyle will be formed, which people themselves will replicate – grow companies for sale.

Plus everything in Poland has a well-thought-out system of state incentives for enterprises. The state assumes up to half of the costs for the services of financial consultants, underwriters, agents.

– And what kind of costs do we have?

– Publicity has a price. The transition of a company from a closed to a public state is not easy and is not always cheap. It is necessary to have a corporate governance structure and think about shareholders. For a small company, it may not be difficult, but still the costs are inevitable.

If an enterprise conducts a full–fledged IPO, and not a closed placement, which is much cheaper, then first of all it will face marketing costs - it is necessary to find investors using the services of an investment bank. Now, as a result of the crisis, investment banks have lowered prices for services, and competition for customers has also arisen. At the same time, good investment book teams appeared, where professionals work. Basically, these are fragments of serious companies that have a customer base. Therefore, small firms can take advantage of the situation.

The costs in figures look like this: if we are talking about the issue of $ 5-10 million, then the costs of placement, for example, in the London AIM will amount to about 10% of the volume of funds raised. And our placement of human stem cells to the Institute costs about 2-3%.

The exchange charges insignificant amounts for the admission of shares to trading (105-265 thousand rubles – Approx. D’). Our main interest is to grow young companies so that they become "blue chips" and recoup our expenses. Now this is a long-term job.

– Is it possible to implement such a project on the OTC market?

– The exchange, having a high reputation both among financial market participants and among entrepreneurs, with a wide partner network, a significant customer base, can and should become the core of the infrastructure for investment in innovation. In this sense, the exchange is able to dramatically accelerate the process of financing the full technological chain: idea–startup–sowing–growth. Plus, the accumulation of the investment community around the exchange, the opportunity to establish a meaningful dialogue with the state on the formation of a favorable environment.

– How is the evaluation of candidates for placement?– There are listing agents, there is a Committee on Direct and Venture investments, which conduct a multi-level examination with the involvement of specialists.

This is a very important factor, as the investor must understand what kind of company it is, what technologies and patents there are. Not everyone can independently determine this. This is the specificity of innovation.

We need to understand the nature of this business and say that everything is fine and there are no increased risks associated with technology, or describe these risks so that investors can evaluate them. Therefore, listing agents can order an additional assessment of a particular issuer, and we are also now counting on the expertise of Rusnano.

Post -placement– Can issuers from the main MICEX market get into RII?

– The RIA sector, on the one hand, is created for young companies, on the other – to some extent elite. The company's youth is compensated by its additional efforts to comply with the exchange's standards: disclosure of information, work with a listing agent, drafting an investment memorandum, etc. If someone from the main market is ready to do this, then theoretically this is possible.

– Igor Shuvalov said that many enterprises could be privatized next year.

– The topic is interesting, and we are ready to participate. However, as experience shows, exchange mechanisms in privatization, as a rule, are not used. But you can count on secondary trading in shares of such companies.

– Last year you brought many issuers to the stock exchange through the MICEX Discovery project. Will you continue?
(MICEX Discovery is a project of the MICEX FB to bring shares of second and third–tier companies traded on the over-the-counter market to the stock exchange without a statement from the issuer itself.)– Although the shares of many companies have been well terminated (for example, Power Machines, Kazan Helicopter Plant.

 – Approx. D’), the crisis slowed down the process of bringing them to the stock exchange. Due to the fall of the market, many enterprises even wanted to leave the stock exchange. Now the situation has improved, and we will return to this issue. Another thing is that the potential of such involvement of issuers is limited. We selected companies with an acceptable level of disclosure and put their shares up for auction. But many companies whose shares are traded on the OTC market are at risk from the point of view of transparency. We don't want to bring them to the stock exchange.

– A few years ago, the High-tech Stock Exchange tried to reach the Russian Kulibins. They even showed me some kind of innovative brick.

– There are pockets of entrepreneurship with an innovative bias in the country – for example, Novosibirsk, St. Petersburg, Mordovia. We have signed cooperation agreements with them within the framework of the RIA. It is developed there, as there is a powerful base inherited from the USSR. There are brains, but they need to be given working conditions, in particular the opportunity to pack and sell the business in the right way. The Kulibins are good as inventors, but it is completely unclear how they can reach financiers. We want to bridge this gap or at least bring the edges closer together.

– Do you want to trade yourself?

– No, I'm different. I have been involved in the stock market for a long time. It's more interesting for me to create conditions for others, and my hands don't itch.

Portal "Eternal youth" http://vechnayamolodost.ru13.10.2009