15 January, 2009
IPO – way to world of capital
For last years one can more often hear in news of IPO with the help of which companies get financing.
In classical interpretation IPO is an initial public offering when a company-issuer places additional (or new) issue of its stock on the market among unlimited investors. However in CIS countries this term can mean not only initial public offering, but also additional placement of stock on stock market, placement through depositary receipts, public offering of convertible bonds, public offering of stock through exchange by issuer's actions, and many other ways of offering stock to investors.
Most owners feel fear of attracting investments by this way. They think that public offering of their stock will lead to loss of enterprise control. However, as practice shows, when offering stock publicly, stock is bought by precisely portfolio investors who are not seeking to own the enterprise.
Kyrgyzstan has a historically formed orientation for a strategic investor, i.e. investor who manages and finances production, supplies with technologies and qualified labor source. For portfolio (institutional) investors there are not enough financial instruments, i.e. demand significantly exceeds supply. The problem can be solved by IPO of the most attractive companies - "blue chips".
Portfolio investors not only finance company's activity, but also control (monitor) it, tend to increase company's transparency, increase company's corporate management standards.
Only recently some home companies somehow were involved in IPO process - these are Kant cement factory, Kyrgyzaltyn, Kumtor-Centerra, Andash Mining Company. At the same time for financing national projects like Kambarata public offering of stock is possible. At the moment state property fund of Kyrgyz Republic works on issue of Kyrgyzaltyn's public issue placing on one of the foreign trade floors.
Experts think that IPO on foreign stock exchanges will be accompanied with heavy expenses. In accordance to this foreign stock exchanges will be available only for large companies like Kant cement factory, Kyrgyztelecom, Manas international airport, Kyrgyzneftegaz, companies of energy sector, TNC Dastan, part of banks. Most banks in republic are subsidiaries of other banks, so for them attracting capital through IPO can run counter to strategy of a parent company. In accordance to this only a part of the banks can use public offering like Ayilbank, Asia Universal Bank, savings & settlements company, Commercial bank Kyrgyzstan. On the internal market IPO could be used by some successful companies registered as LLCs or CJSC like CJSC "Shoro", "Sky Mobile", "SapatCom", Demirbank and KICB.
By analysts' statements, nowadays, because of crisis events in U.S. and Western Europe which give new opportunities for developing economies, favorable conditions have formed for Kyrgyz companies to use IPO. It is also connected with coming last stage of privatization which will most probably lead to increase of companies' capitalization and stock prices increase.
For development of home stock market firstly it is necessary to give a dry run to investments attraction through IPO on our trade floors. And the first step for solving this problem must be offering stock of state enterprises (companies, more 60% of which belongs to the state) on primary or secondary market.
Recently more foreign portfolio investors have become interested in Kyrgyz stock market, however as mentioned before there are not enough financial instruments. Access to foreign stock exchange through IPO can take more than two years. In connection with this most perspective is public offering on Kyrgyz stock exchange parallel with process of preparing IPO on foreign trade floor. This will hell the company to get its own history on the market. Also bonds can be placed which will show how the market evaluates the company and also will help to determine potential investors.
Business owners who have an intention to attract long-term investment resources on financial market already have to disclose information and become more transparent. Because for attracting capital one of major conditions is transparency of company's functioning. At the moment there are requirements for issuers on Kyrgyz stock exchange who are in quotation list. These requirements provide company's stockholders structure information disclosure, publication of quarterly financial statements, and notes to trade floor about the facts which influence company's activity stability.
Against the background of global mortgage crisis and worsening of situation on credit market, stock market can become a way of attracting financial resources. On stock market companies can attract necessary capital in sufficient capacity.
Next tome we will consider some issuers and their possibility to pass IPO in Kyrgyz Republic.
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