Page 2 - bne_October 2018_20181001 SPF Russian stock stories

32 I Special focus bne September 2018
bne September 2018 Special focus I 33
told Vedomosti that "this situation is seen as a point for growth." Market maker of the BPIF Sberbank CIB will be able to buy back the stake in the fund at any point from the investors, boosting its liquidity.
The BPIF plans to raise over RUB3bn ($44mn) in one year and plans to launch another three BPIFs, anchored in state securities, S&P500, and Russian Euro- bonds, respectively.
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The head of FinEx Vladimir Kreyndel argued to Vedomosti that Russian BPIFs are not exactly ETFs as they still lack key ETF features, such as independent trustees and custodians.
The launch of the BPIF is the latest attempt to create a fund industry in Russia that has always been lacking, and Russian individual investors have never had much luck with funds. The BPIF builds on the closed-end invest- ment funds, known as PIFs in Russia, that were introduced by Boris Yeltsin in 1997, about six months before the 1998 financial meltdown.
Yeltsin’s PIFs caused a great deal of excitement and brought investment stars like Mark Mobius to Russia, where he established a Russian branch of
Templeton Asset Management to build the mutual fund business. However, most of these funds were wiped out in the 1998 crisis where the ruble lost three quar- ters of its value in a month and the RTS index fell from over 500 to a low of 38.
Since then various banks have tried
to reestablish a mutual fund business. Previously the oldest funds were estab- lished by independent investment bank
Troika Dialog that was later sold by its owner Rubin Vardanian to Sberbank and formed the core of the retail giant’s investment arm, Sberbank CIB, that is launching the BPIFs. However, these investment funds never collected much money, partly thanks to the constant shocks investors suffered from due
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to the volatility of the Russian securi- ties markets and partly because retail investors have traditionally sought safer returns from bank deposits and real estate investments.
But that is starting to change now. With inflation down to historic lows
of circa 3% and interest rates on deposit accounts falling in line with the tumbling cost of capital, the average Russian is starting to look around for new investment opportunities that pay a bit more. The interest in funds has been increasing.
The government has been trying to encourage this trend and has intro- duced “investment accounts” that carry significant tax breaks for small inves- tors prepared to tie up their money in securities. At the same time the Ministry of Finance has been experimenting with the so-called People’s Bond, a fixed income instrument that specifically targets retail investors. Sberbank again (together with VTB) issued the first People’s Bonds.
While no one expects the BPIFs to mushroom, especially amongst battle- scarred retail investors, the timing
of the new instrument is good as the
tide for investment funds is rising in Russia.
Russia’s share buybacks are en vogue
We have launched a new publication bneTech
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hat comes down, must go up. That’s how the owners of many of Russia’s biggest
prom Neft and Rosneft – Lukoil has been playing kiss chase with the title of “Rus- sia’s most valuable company” in recent months briefly overtaking the other two to top the list.
Russia’s biggest oil company also launched an IR charm offensive earlier this year that included reducing its
debt and its first ever $2bn share buyback. But Rosneft being Rosneft it has managed to stamp on a few toes in the process. The company launched the buyback in August that will last until December 2020, but then announced
it would only buy shares at the prices prevailing in May, significantly lower than in August. Then in September the company started getting cold feet and the whole programme is in limbo now. Rosneft CEO Igor Sechin complains the value of the company, which is on the US sanctions list (as is Sechin personally), should be closer to $130bn instead of its current market capitalisation of $65bn.
Also in September Russia’s leading supermarket chain Magnit launched a RUB16.5bn ($241mn) share buyback to try and apply some salve to its long standing and loyal shareholders that have been burned in this year’s drama surrounding the company. For many
than a little miffed as the size of the sale was just under the threshold that would have triggered an offer to minorities and the subsequent reports of board room battles over strategy all contributed to
a tumble in the share price and a nasty tarnishing of the previously spotless reputation. In the last months a new highly respected management team has been put in place, which has started the process of repairing the damage – including buying back some stock to support the share price.
In July shareholders of Mobile TeleSys- tems (MTS) also approved a buyback of mobile major's shares worth RUB30bn ($0.5bn) over the next two years, which was met positively by the analysts. Here the motivation was slightly different as MTS is partly owned by AFK Sistema, which found itself in an epic corporate war with Rosneft. Rosneft accused Sistema of stripping its oil subsidiary Bashneft of cash before it was nation- alised and sold to Rosneft. The state- owned juggernaut got a court of freeze all of Sistema’s shares in subsidiaries, including MTS, that were to be contrib- uted to a huge compensation claim. Part of MTS share buyback is designed to insulate it from Sistema-related risks.
Russia’s internet giant Yandex announced a $100mn share buyback in June that is part of a staff motivation options programme. This sort of scheme is still extremely novel in Russia as while the top management are regularly included in shareholder structure,
the US model of giving even low level employees options in the company is still almost unheard of in Russia. But then Yandex is arguably Russia’s most progressive company and already equal to its western peers – Yandex is already the most valuable internet company
in Europe and one of the few Russian stocks to have regained and seen its shares pass its pre-2014 crisis IPO price.
corporations are looking at their share price at the moment, many of whom have launched share buybacks in the last year to take advantage of the low price of their stock now.
The attitude of Russians owners to their stock has changed dramatic in the last decade. In the 90s all shares meant was a way to capture the revenue streams
of raw material producing cash cows. These days increasingly owners see their shares as a source of capital they can
use to pay for acquisitions or turn into cash on the capital markets. This change is most visible in the extremely high dividends many companies pay, as a way of investing into their stock (and a new more equitable way of extracting cash from a company). However, buybacks serve the same purpose; owners use excess cash to buy up shares, support their share price and invest into the value of their stock.
The most recent example was Russia's second-largest oil company and largest privately owned oil company Lukoil that started the first stage of its $3bn share buyback that was announced earlier
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this year on September 19 which will run through the end of 2022. At the first stage, the company will acquire at least $1bn worth of its shares by the end of 2019. And the company’s investor friendly attitude has already brought
it benefits as despite having smaller reserves and lower oil production than its two bigger state-owned rivals – Gaz-
years Magnit was an investor’s darling on the basis of its spectacular growth and the no-nonsense management who had built a world class retailer. How- ever, this summer Magnit’s founder and largest shareholder Sergey Galitsky sold 29% of his stake for RUB139bn ($2.4bn) to state-owned bank VTB on February 16. Minority shareholders were more
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Avast to enter London bourse in bid to raise up to $1bn Jaroslav Hroch in Prague
Avast, which owns the popular consumer antivirus company AVG, will apply to list its shares on the London Stock Exchange in the hope of raising $200mn (CZK4.1bn) in primary proceeds from an IPO, the Czech-founded company announced on April 12.
See page 2
St Petersburg's start-up scene flourishes on high talent and low costs
Contents
Avast to enter London bourse
in bid to raise up to $1bn 1 Avast to enter London bourse in bid to raise up to $1bn 2 St Petersburg's start-up scene
flourishes on high talent and low costs 3 Romania entrepreneur aims to put home-grown UAV defence technology industry on the map 6
FinTech
Russia's mobile major MTS increases stake in Ozon to 16.7% 9
Blockchain
Romanian startups at the heart
of blockchain energy trading rally 10
Central Europe
Russian-Lithuanian startup Gosu.ai
raises $1.9mn from Russian and
French investors 13
Eurasia
Iran hit by cyber attack that left US
flag on screens 14 Iranian government set to block hugely popular Telegram messaging app 15 Iran's black market phone disconnection drive pushes up legal mobile imports 15
Eastern Europe
Internet catches up with TV on Russian
ad market 17 Sales of connected appliances jump
in Russia 17 Russia's HeadHunter Group seeks
to raise $250mn with NASDAQ IPO 18 Russia ranks second in the world
for digital piracy 18 Russian messaging service Telegram raised another $850mn with ICO 19
Southeast Europe
Russia's HeadHunter Group seeks
to raise $250mn with NASDAQ IPO 20
The Regions This Month 21
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