Всероссийская академия внешней торговли
ФАКУЛЬТЕТ МЕЖДУНАРОДНЫХ ФИНАНСОВ
КАФЕДРА АНГЛИЙСКОГО ЯЗЫКА ФЭМ
Работу выполнила: студент V курса
Чернова Ольга Владимировна
Практикум по письменному переводу Профессионально-ориентированного текста
Руководитель практикума:
Преподаватель кафедры
английского языка
Курса «Переводчик в сфере
профессиональной коммуникации».
Юшина Елена Владимировна
Работа сдана на кафедру: “____»__________2013 г.
Москва 2014
Оглавление
PART I ORIGINAL TEXT 3
PART II ПЕРЕВОД 30
ЛИНГВИСТИЧЕСКИЙ КОММЕНТАРИЙ 60
PART I ORIGINAL TEXT
Alternative Investment Market (AIM).
London Stock Exchange (LSE). (p.14-16)
A general overview of AIM
Regulated by the London Stock Exchange, providing a more flexible regulatory environment
No minimum revenue requirement
No minimum amount of shares to be in public hands
In most cases, no prior shareholder approval required for transactions
Admission documents not pre-vetted by the Exchange or UKLA but by nominated adviser
Nominated adviser requires at all times
What is the process for admission to trading on AIM?
Publication of either a prospectus or an admission document. A prospectus is required where a company is offering shares to the public under the Financial Services and Markets Act 2000 (“FSMA”), unless either the value of the shares being offered is less than 2.5 million in which case a prospectus will not be required or the offer falls within a specific exemption. For example, a prospectus will be required for a placing where the purchasing shareholders do not fall within an exemption in the FSMA. An admission document is used where a company is either simply applying for its existing share capital to be traded on AIM or is also offering shares pursuant to a placing but such offer does not constitute an offer to the public under the FSMA.
There is no requirement to obtain approval of an admission document by the London Stock Exchange (“The Exchange”) prior to publication. In contrast, if a prospectus is required it must be approved by the Financial Services Authority (“FSA”) before it is published. In each case, the company’s nominated adviser (“NOMAD”) must confirm to the Exchange the suitability of a company and its securities to be admitted to AIM.
AIM rules determine the contents of an AIM admission document and the FSA Prospectus Rules determine the contents of a prospectus. Although many of their requirements are similar, the FSA Prospectus Rules generally require more information to be included in a prospectus.
At least 10 days before the expected date of admission to AIM, the company must provide the Exchange with the information specified in Schedule 1 to AIM rules (this includes details of the number and type of shares, significant shareholders, directors and proposed directors and the names and addresses of the NOMAD and the nominated broker).
The prospectus/admission document must be published at least three days before admission and the applicant must pay AIM fees (an admission fee of £4,340*, together with n annual fee of £4,340 pro data) and submit an electronic copy of the document to the Exchange together with a completed application form, the NOMAD’s declaration and a letter from the company’s broker confirming its appointment.
Where shares are being offered to the public, copies of the prospectus (once it has been approved by the FSA) must be made available to the public at UK address, or electronically on the company’s website, from the time the offer of shares to which the prospectus relates is fisrt made until the offer closes. The prospectus must also be filed with the FSA before it is published.
There is no requirement to file an admission document, but it must be available publicly, free of charge, for at least one month from the admission of the applicant’s securities to AIM.
Admission to AIM only becomes effective when the Exchange issues a dealing notice to that effect.
Is an IPO right for this company?
Alternative Investment Market (p.20-22)
The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than is applicable to the Main Market. AIM was launched in 1995 and has raised almost £24 billion for more than 2,200 companies. Flexibility is provided by less regulation and no requirements for capitalization or number of shares issued. Some companies have since moved on to join the Main Market, although in the last few years, significantly more companies transferred from the Main Market to AIM (AIM has 6) significant tax advantages for investors, as well as less regulatory burden for the companies themselves). In 2005, 40 companies moved directly from the Main MArket to the AIM,while only rwo companies moved from AIM to the Main Market.
Aim has also started to become an international exchange, often due to ita low-regulatory burden, especially in relation to the Sarbanes-Oxley Act (though only a quarter of AIM-listed companies would quality to list on a VS stock exchange even prior to passage of the Sarbanes-Oxley Act)1. As of December 2005 over 270 foreing companies had been admitted to the Alternative Investment Market.
The independent FTSE2 Group maintains three indices for measuring AIM, which are the FTSE AIM UK 50 Index, FTSE AIM 100 Index, and FTSE AIM All-share Index.
Alternative Investment Market (AIM)
Type |
Stock Exchange |
Location |
London, UK |
Founded |
1995 |
Owner |
London Stock Exchange Group |
Key people |
Marcus Stuttard Head of AIM |
Currency |
GBP |
No. of listings |
1,594 |
Website |
AIM homepage on London Stock Exchange |
AIM's regulatory model
AIM is an exchange regulated venue featuring an array of principles-based rules for publicity held companies. AIM's regulatory model is based on a comply-or-explain option that lets companies that are floated on AIM either comply with AIM's relatively few rules, or explain why it has decided not to comply with them.
Nominated Advisers (Nomads)
Aside from granting leeway in regards to regulatory compliance, the Exchange also mandates continuous oversight and advice by the issuer;s underwritter, referred to as a Nominated Adviser (Nomad). The role of Nomads is central to AIM's regulatory model, as these entities play the role of gatekeepers, advisers and regulators of AIM companies. In advising exch firm as to which rules should be complied with and the manner in which existing requirements should be met, Nomads provide the essential service of allowing firms to abide by tailor-made regulation reducing regulatory costs in the process. Theoretically, Nomads are liable for damages from tolerating misdemeanors on behalf of their supervised companies, including the loss of reputational capital. However, this heavy reliance on Nomads receive fees from the companies they purportedly supervise while, in practice, managing to avoid liability for market misdiscount.
In 2006, the London Stock Exchange launched a review of Nomad activities, resulting in a regulatory «handbook' for Nomads published by the Financial Services Authority in 2007.
How long will it take for the shares to be admitted to trading on AIM?(p.28-30)
The actual flotation process will generally take three to four monts from instruction of advisors to admission. However, in practice, the interval between the decision of the board to seek admission to AIM and admission itself is often a great deal longer than this, since thought must be given to matters such as group structure, corporate governance and financial controls and the putting in place of appropriate share-based incentive schemes for the employees of the company. Assuming that these matters are satisfactory dealt with, the timetable for the flotation, the offering structure (placing public offer or both), whether the offer is to be underwritten, whether the offer is to be extended to international investors and the extent of any pre-impact capital reorganisation which is required.
The timetable for the flotation will general be longer if a prospectus (as opposed to an admission document) is required. This is largely because the prospectus must be vetted and approved by the FSA prior to it being published.
A key factor is how much work auditors are required to carry out in order to prepare a long-form report and a short form report and to undertake a working capital review in support of the mandatory statement in the prospectus/admission document regarding the adequacy of working capital for the company's current requirement. Any tax clearances which may be required for any pre-impact reorganisations or any Inland Revenue approval of share-based incentive schemes may also affect the timetable.
What other advisers will I need to appoint and how much will the transaction cost?
Nominated Adviser – The NOMAD plays a key role in bringing the company to AIM and in guiding and advising it on both admission itself and its ongoing obligations after admission. It is the company’s key point of contact with the Exchange and most of its roles and responsibilities are set out in AIM rules. An AIN company must retain the services of a NOMAD at all times. The reason for this is that AIM companies are perceived as being less experienced than Main Market companies and, therefore, are more likely to need advice and expertise. If a company terminates the service of its NOMAD it must notify the market immediately, whereupon the company’s shares will be suspended and the company will have one month to appoint a new NOMAD. Failure to appoint a new NOMAD within one month will result in cancellation of AIM company’s shares.
Reporting Accountants – They are distinct from the company’s auditors and their principal function ss to review the company’s financial results and reporting processes and report to the NOMAD on any areas of concern, primarily by way of a long-form report which will also include a detailed review of the business and assets of the company.
Solicitors to the company – They will advise on the legal aspects of preparing the company for admission to AIM including any pre-impact capital reorganization, the re-registration of the company as a plc, the amendment to or replacement of the company’s constitutional documents, the putting in place of any proposed share-base incentive schemes, the terms of directors’ service agreements, the duties and responsibilities of the directors and general compliance issues, the terms of any placing and/or underwriting agreement and the preparation of verification notes and ancillary documents. Additionally, the company’s solicitors will undertake a legal review covering agreed matters such as regulatory compliance, the terms of the company’s principal agreements, any litigation, employment contracts and such other matters as may be required by the NOMAD for purposes of satisfying itself of the appropriateness of the company for admission to AIM.
Financial PR Consultants – They will be engaged to generate positive press interest and publicity and monitor content and wording of any public statements.
Nominated Broker – The broker “warms up” the market for the issue of the company’s shares and is ultimately responsible for selling those shares to the chosen market, which will generally comprise institutional investors. After the flotation the broker will work with the company to sell to ensure there us a proper market in the company’s shares. An AIM company must retain the services of a nominated broker at all times.
The usual cost for engaging the above advisers on a flotation, is , in aggregate, £500.000-£900.000. As a rough guide, a company can expect to pay 10 per cent, of any money raised in fees.
The typical cost for appointing a NOMAD to advise on admission to AIM is usually calculated as a percentage of any new money raised, typically between 3 and 5 per cent, of the value of the issue, depending on the nature of the obligations assumed by the NOMAD (and inclusive of sub-underwriting commissions). Additionally, a corporate finance fee is generally charged. This may be in the region of £75,000 to £300,000. Approximately £25,000 to £35,000 is charged on an annual basis for a NOMAD’s continued services.
NASDAQ (p.25-27)
NASDAQ
Type |
Stock exchange |
Location |
New York City, USA |
Founded |
February 8, 1971 |
Owner |
The NASDAQ OMX group |
Key people |
Robert Greifeld (CEO) |
Currency |
USD |
No. of listings |
3,800 |
Indexes |
NASDAQ Composite NASDAQ-100 NASDAQ Biotechnology Index |
Website |
www.nasdaq.com |
The NASDAQ Stock Market, known as NASDAQ, is an American stock exchange. “NASDAQ” originally stood for National Association of Securities Dealers Automated Quotations”, but the exchange’s official stance is that the acronym is obsolete. It is the largest electronic screen-based equity securities trading market in the United States. With approximately 3,700 companies and corporations, it has more trading volume than any other stock exchange in the world.
History
It was founded in 1971 by the National Association of Securities Dealers (NASD), who divested themselves of it in a series of sales in 200 and 2001. It is owned and operated by the NASDAQ OMX Group, the stock of which was listed on its own stock exchange beginning July 2, 2002, under the ticker symbol NASDAQ: NDAQ. It is regulated by the Securities and Exchange Commission.
With the completed purchase of the Nordic-based operated exchanged OMX, following its agreement with Borse Dubai, NASDAQ, is poised to capture 67% of the controlling stake in the aforementioned exchange, thereby inching ever closer to taking over the company and creating a trans-atlantic powerhouse. The group, now known as Nasdaq-OMX, controls and operates the NASDAQ stock exchange in New York City – the second largest exchange in the United States. It also operates eight stock exchanges in Europe and holds one-third of the Dubai Stock Exchange. It has a double-listing agreement with OMX, and will compete with NYSE Euronext group in attracting new listings.
When the NASDAQ stock exchange began trading on February 8, 1971, the NASDAQ was the world’s first electronic stock market. At first. Ir was merely a computer bulletin board system and did not actually connect buyers and sellers. The NASDAQ helped lower the spread (the difference between the bid price and the ask price of the stock) but somewhat paradoxically was unpopular among brokerages because they made much of their money on the spread.
NASDAQ was the successor to the over-the-counter (OTC) and the “Curb Exchange” systems of trading. As late as 1987, the NASDAQ exchange was still commonly referred to as the OTC in media and also in the monthly Stock Guides issued by Standard&Poor’s Corporation.
Over the years, NASDAQ became more of a stock market by adding trade and volume reporting and automated trading systems. NASDAQ was also the first stock market in the United States to advertise to the general public, highlighting NASDAQ-traded companies (usually in technology) and closing with the declaration that NASDAQ is “the stock market for the next hundred years”. Its main index is the NASDAQ Composite, which has been published since its inception. However, its exchange-traded fund tracks the large-cap NASDAQ-100 index, which was introduced in 1985 alongside the NASDAQ 100 Financial Index.
Until 1987, most trading occurred via the telephone, but during the October 1987 stock market crash, market makers often didn’t answer their phones. To counteract this, the Small Order Execution System (SOES) was established, which provides an electronic method for dealers to enter their traders. NASDAQ requires market makers to honor traders over SOES.
In 1992, it joined with the London Stock Exchange to form the first intercontinental linkage of securities markets. NASDAQ’s 1998 merger with the American Stock Exchange formed the NASDAQ-Amex Market Group, and by the beginning of the 21st century it had become the largest electronic stock market (in terms of both dollar value and share volume) in the United States. NASD spun off NASDAQ in 200 to form a publicly traded company, the NASDAQ Stock Market, Inc.
On November 8, 2007 NASDAQ bought the Philadelphia Stock Exchange (PHLX) for US$652 million. PHLX is the oldest stock exchange in America – having been in operation since 1970.
To qualify for listing on the exchange, a company must be registered with the SEC, have at least three market makers (financial firms that act as brokers or dealers for specific securities), and meet minimum requirements for assets, capital, public shares and shareholders.
Alternative Investment Market (AIM)(.44-46)
Does the AIM company have to be a certain type of company incorporated in a specific jurisdiction?
If the company seeking admission to AIM is a UK company it must be a public limited company in order to be able to offer its shares to the public.
Overseas companies can have their shares traded on AIM. There are approximately 280 foreign companies whose shares are presently traded on AIM. The overseas company must be equivalent in its country of incorporation to a UK public company so that it can offer its securities to the public. There may be local legal and regulatory requirements which overseas companies will need to satisfy before they can proceed to an admission to AIM. In certain jurisdictions such requirements can be onerous. Local advice should be taken at an early stage in order to identify their implications for the flotation timetable.
An expedited admission route is available for companies whose shares are already traded on certain designated markets, which means that such applicants do not have to prepare an admission document. The quoted applicant must, at least 20 days before the expected date of admission to AIM, provide the Exchange with the information specified in schedule 1 to AIM rules. Such quoted applicant must have had its securities traded upon an AIM designated market for at least 18 months prior to applying to have those securities admitted to AIM if it wishes to take advantage of the expedited admission route. However, the expedited admission route does not exempt a company which is offering shares to the public from having to prepare a prospectus.
Must the AIM company have a particular capital structure?
It is normal for an AIM company to have one class of ordinary shares. It is also possible (but less usual) to have other classes of shares or debt securities.
The shares must be freely transferable and eligible for electronic settlement e.g. through CREST. However, there is no prohibition on shareholders entering into agreements which restrict their freedom to transfer shares held by them. Shares of overseas companies cannot be settled directly through CREST. However, depository interest programmes exist in order to enable shareholders of such companies to hold securities which can be settled electronically.
In order to do business, the nominal value of a UK plc’s share capital must not be less than £50,000 and not less than 25 per cent of the nominal value of the shares allotted and the whole of any premium must be paid up. This is a UK company law requirement, so if the company being floated is a non-UK entity, the position will be governed by applicable local law.
All of the shares of a particular class must be admitted to trading on AIM.
Is there any requirement that the shares of the key management must be subject to restrictions on sale for a period of time after trading commences?
Yes – where the main activity of a company applying for admission to trading on AIM is a business which has not been independent and earning revenue for at least two years, it must ensure that all “related parties” agree not to dispose of any interest in the company’s shares for one year from the date of admission.
“Related parties” in this context means (i) any director of the company or any of its subsidiary, sister or parent undertakings, or (ii) any substantial shareholder who holds directly or indirectly 10 per cent or more of any class of shares to be admitted to AIM, or (iii) applicable employees who are employees of the company, its subsidiary or parent undertakings who, together with their family, have a holding or interest directly or indirectly in 0.5 per cent or more of a class of shares to be admitted to AIM.
Although not a regulatory requirement, the NOMAD will usually wish to impose restrictions on the transfer of shares in the company by directors and major shareholders for a period of time after admission in order to avoid the possibility of a large number of shares being made available for sale soon after admission which could distort the market in the company’s shares. A NOMAD will particularly want such restrictions if it is underwriting the issue of shares and has to take up shares in the issue which it will then want to sell in small numbers into the market as and when it can. Such undertakings are typically for a period of between 12 and 24 months.
What potential liabilities will the directors be exposed to in connection with the proposed admission to trading on AIM?
When the application for admission to trading on AIM is made in conjunction with an offer of the company’s shares to the public, a prospectus is required. This means that under section 87A of the FSMA the prospectus must contain all information necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the company and the rights attaching to the securities. In the event that the prospectus is false or misleading, the directors, the company and any other persons (such as the NOMAD or other professional advisers) responsible for the prospectus are liable to pay compensation to any person who has acquired the shares to which the prospectus relates and who has suffered loss in respect of them as a result of any untrue or misleading statement in, or any omission from, the prospectus.
Where an admission document is published under AIM rules the company seeking admission must ensure that the admission document contains all information which it reasonably considers necessary to enable investors to form a full understanding of (i) the assets and liabilities, financial position, profits and losses and prospects of the company, (ii) the rights attaching to the securities and (iii) any other matter contained in the admission document.
Liability may arise under the FSMA for false or misleading statements, under the Theft Act, in tort for fraudulent misrepresentation or for breach of contract if either an admission document or a prospectus is published.
If a company is issuing shares as part of the flotation, the directors will incur liability under the placing or underwriting agreement as they will be expected to give warranties (subject to customary limitations in terms of time and amount) to the NOMAD relating to the prospectus/admission document and the company’s business generally.
Are there any rules governing the composition of the board of directors of the AIM company? (p.59-61)
Whilst the provisions of the Combined Code (“Code”) do not apply to companies trading on AIM, it is considered best practice to adhere to its provisions which include the following:
there should be a clear division of responsibilities at the head of a company between the running of the board and the executive responsibility for the running of the company’s business. The roles of the chairman and chief executive should not be exercised by the same individual;
there should be a balance on the board between executives and non-executives (at least two of whom should be independent), the intention being that no small group of individuals or one individual can dominate the board’s decision taking;
the board should not be so large as to be unwieldy;
the board should be of sufficient size that the balance of skills and experience is appropriate for the business of the company;
salaries should be sufficient to attract, retain and motivate directors of the quality necessary to run the company. The Code recommends that director’s salaries should be structured in a way that rewards are linked to corporate and individual performance; and
directors’ service contracts should be terminable on no longer than 12 months notice. They should also provide for the director to leave the board of the company if that director materially breaches or causes the company materially to breach the AIM rules. Directors should not be rewarded with a huge payoff if they leave due to failure to deliver.
Whilst not a requirement, it is considered best practice for an AIM company to include a director’s remuneration report in its annual report and accounts (containing details of each individual director’s benefits and salary) and to have prior discussions with its institutional shareholders before any significant changes to directors’ remuneration are made.
In 2005 the Quoted Companies Alliance published Corporate Governance Guidelines for AIM Companies. Although these guidelines have no formal regulatory status they do represent a consensus view of the AIM advisory community and in large part reflect the key provisions of the Code highlighted above.
What ongoing reporting requirements and continuing obligations will be required of both the AIM company and its directors?
In addition to always having a NOMAD and a nominated broker, the company must keep the market informed of the progress of its business and other relevant matters by announcing without delay:
any new developments not in the public arena which relate to a change in its financial condition, sphere of activity or business performance which if made public would be likely to lead to a substantial movement in the company’s share price;
any dealings by directors in its shares;
any changes to its significant shareholders;
the resignation, dismissal or appointment of any director;
any decision to declare a dividend;
any material change between actual performance and any publicly announced forecasts;
changes to its accounting reference date and registered office;
reasons for the dismissal or appointment of its NOMAD or nominated broker;
reasons for the application for admission or cancellation of the trading of its securities on AIM;
substantial transactions, i.e. where class tests exceed 10 per cent related party transactions, i.e. where class tests exceed five per cent and reserve takeovers or fundamental disposals where shareholder approval is also required.
In addition, an AIM company must:
prepare and publish a half yearly report within three months after the relevant half year period;
prepare and publish audited annual accounts within six months of the financial period to which they relate; and
ensure that directors and employers who hold 0.5 per cent of the company’s shares do not deal in the company’s shares within close periods (i.e. the two months preceding (i) the publication of the company’s annual results or (ii) the announcement of its half yearly results).
The company is subject to a general disclosure obligation, which means that the Exchange may require a company to provide it with such information, in such a form and within such limits, as the Exchange considers appropriate and also to publish such information.
What are the advantages of seeking admission to AIM?
Admission to AIM or the Main Market provides a public market for the company’s shares. This confers a number of benefits to the company and its shareholders including facilitating capital raising through new issues, providing holders of share-based incentives with a market on which to trade their shares and providing greater flexibility in making acquisitions, since shares which have liquidity can be offered as consideration instead of, or in addition to, cash. Features of AIM include:
fewer barriers to entry and ongoing compliance requirements are less burdensome;
no minimum market capitalisation needed; attractiveness for companies seeking growth and new capital which have little or no trading record;
prior shareholder approval for transactions is only required if the ratios exceed 100 per cent in any of the class tests (i.e. a reverse takeover or a fundamental disposal), as compared to the 25 per cent threshold for an official list company;
AIM shares are treated as “unquoted” for tax purposes and, accordingly, certain tax incentives are offered to investors in companies which meet the relevant qualifying conditions including, in the case of individuals, enterprise investment relief and reinvestment relief. These reliefs, which are not available to Main Market companies may result in the deferral and even elimination of tax on investments made. Individuals investing through venture capital trusts may also enjoy similar reliefs; and absence of requirements to have a minimum number of shares in public hands. It should be noted, however, that a small “free float” is one factor which can give rise to reduced liquidity in a company’s shares.
IPO-NEW OPPORTUNITIES (p,76-78)
Naked or Clothed? Going for an IPO, Only a Real Strategy Counts.
by Philip Modiano, Partner, Strategy Partners (MT Conferences)
It is a common truism that every company needs a robust strategy for the first few years of being public, although exactly what constitutes a satisfactory strategy varies. Many companies have prospered in Russia over the past 15 years with no more than a “focus” on a business area. But at no time is a well-articulated strategy more useful than in the preparation and first years of being public. There are three main points:
At what stages in and after the IPO process is the strategy required?
What are the important elements of strategy to articulate?
What are the benefits and what is the downside of being less well prepared?
In a simplified form, an IPO involves the following stages:
Communicating with the investment banker (IB) and other service providers who support your going public.
Communicating with investors and other market players during the process.
Communicating with investors and the market after going public.
It may be obvious that articulating a clear strategy will help in communicating with investors before and after the IPO process. But it is not clear to many Russian companies that it is better to have a clear strategy before you start interacting with your IB. Last year, investment bankers and clients twice approached us to help prepare a strategy. In each case, they came to us because the company had failed to impress the bank with their prospects. While in each case, we were able to develop a robust strategy, some damage had been done.
The relationship with IB is crucial. Where the impression is favorable, the client retains more leverage in small decisions during the process, culminating in the big ones of timing and price. Also, the bank will have a direct influence on the market according to the attitude it has formed.
The last reason for preparing a strategy at the beginning is that if it is developed later, possibly at the urging of the IB, it can be superficial. Last year a company asked us for a strategy saying, “It does not need to take too long, we just need the minimum necessary to go public!” No doubt they found another company willing to take their ruble!
So what are the essential elements of a strategy that make it more than just window-dressing?
Every company going public will, of course, say what they will do, what results they expect, and what is special about their company. The question is whether this story stands up and impresses under scrutiny by the market during the IPO process and can unite the company to overcome difficult market conditions that may arise in the following two years.
The IPO process requires management to present their company to audiences of investment managers, regulators, financial press, analysts and brokers. The IB will usually do its job and ensure that the reception is positive, so that the launch proceeds at a price according to conditions. But there is a huge difference in the degree of positive reaction obtained that comes from their evaluation of the quality of the strategy and of management. One of the ways they evaluate the management team is by the quality of the strategy they prepared!
Some audiences will be superficial in their questioning, often coming up with ill-considered questions, while others will be thorough. As one of our clients told us “The difference between a robust strategy and just a story, is that it provides the answer to all questions, we did not have to think on our feet and make up answers”.
But it is after the IPO that really counts. Of course, in favorable circumstances the company does well and investors are happy. About half the time things do not go according to the plan. Then the question is whether the company is seen as “on course” or having to “change course”. Markets are forgiving in adverse circumstances if the underlying strategy is robust. But they will desert a company, if it appears that they were “sold” an invalid story.
The key elements of a robust strategy include not only what differentiates the company and what it will achieve but also:
Competitive positioning in each segment, which is validated
Market dynamics, i.e. allowing for new entrants, consolidation, internationalization
Market scenarios which take account of most potential outcomes
Sales and operations strategies which show that the anticipated results can be delivered
Our clients, who understand the real benefits of a sound strategy, do it for themselves, not for their IB, or the market. As one general director said, “the best arguments are the true ones; only if we have a good strategy can I be confident of persuading anyone else that we have one”.
Legal aspects of IPOs in Russia.(p.91-93)
An initial public offering includes the following key stages: obtaining public status; offering and distributing shares among a wide range of investors; and obtaining the listing and commencement of public trading of shares on a stock exchange. The modern IPO is not just about selling shares to raise money from investors. In exchange for the investors’ money, the issuers as public companies are supposed to disclose financial results and all other information that is material to an investor’s decision to invest or is necessary to prevent disclosures from being misleading or deceptive. Although some of the disclosure principles are not currently legally binding in Russia, investors expect issuers to comply with generally accepted standards and reward those which meet their expectations.
Legal aspects are very important at all stages, from preparing the issuer for the IPO to conducting the offering and post-IPO compliances. An IPO is usually preceded by meticulous and considerable legal restructuring, legal separation of major shareholders’ transactions from the company’s business, implementation of appropriate corporate governance principles and the bringing of financial statements into compliance with international standards. At the preparation stage, legal aspects are one of the decisive factors which determine the jurisdiction and the stock exchange for the listing. When choosing the market, consideration should be given as to whether this market is litigious, reasonably regulated and how costly post-IPO compliance will be.
As part of the IPO process, in Russia, as in countries with developed capital markets, the best practice is to conduct a legal due diligence review of the issuer’s activities in order to discover and mitigate potential risks. If the risks are material and cannot be cured, this can lead to either the offering being postponed or even cancelled, or the disclosure of such risks to investors, which can affect the price of the securities. The threat of law suits is one of the causes why an initial public offering may be underpriced as this helps to mitigate the risk of a drop in the price, which could give investors grounds to litigate.
The trend in recent years is that companies are increasingly making IPOs in their local market. The offering’s structure usually depends on the aims of the controlling shareholders and the company, the size of the offering, tax considerations and the shareholding structure. The following are the main IPO structures used by Russian companies:
pure open subscriptions, which are still subject to some legal concerns and uncertainties and may require prefunding by underwriters;
closed subscription in favor of a GDR Depositary combined with offering the GDRs outside of Russia (in most cases on the London Stock Exchange);
offering by majority shareholders to the public;
“top-up” offering structure where the offering to investors is combined with a closed subscription in favor of existing shareholders who sell preexisting shares and use the proceeds to purchase newly issued shares; and
“top-up” offering structure where the offering to investors is combined with an open subscription, whereby majority shareholders sell pre-existing shares to investors and exercise preemptive rights, using the proceeds to purchase newly issued shares.
Reverse takeover, when a public company is acquired in exchange for control over a private company as a method to become public, is still quite rare in the Russian market.
Many companies apply a “dual-tracking” or even a “multipath” approach: they prepare an IPO and in parallel consider a sale to strategic investors, a sale to private equity or venture capital, a sale to or a merger with a competitor or a private placement to a group of professional investors.
Most Russian offerings are structured as Regulation S offerings and as private placements in European and other countries. Some issuers access U.S. capital without a listing in the United States using Rule 144 A deals which offer stocks on a resale basis only to “Qualified Institutional Buyers”, or QIBs, which are exempt from SEC registration.
The modern capital market is global and includes the Russian market. Therefore, as part of the IPO process, an issuer is being introduced and promoted to the international investment community. Fair and reliable information about operations of public companies helps to correctly assess the issuer’s business, its competitors, the industry and eventually it allows an assessment of the economy, the country and its place in the world. That is why each new IPO represents for the Russian economy a step out of the shadows and why it is important for every Russian company that has made an IPO to strive to meet the investors’ disclosure expectations. For Russia, the wave of IPOs means more investments in the economy, the redistribution of financial resources in favor of public companies and eventually a new stage of social development.
IPO: ARE YOU PREPARED? (P.108-111)
There is significant evidence to suggest that a well-prepared company with appropriate corporate governance will command an improved valuation premium by investors. It’s common sense. In the process of an IPO, management can optimize the valuation of their business and ensure that the IPO process itself runs relatively smoothly.
A well-rationalized and presented investment story is essential to communicate effectively with investors, intermediaries and regulators. Most important, it should clearly identify the unique features of your company that set it apart from its peer group and competitors and clearly articulates the objectives of the offer and the rational underlying them. Management focused on creating and enhancing shareholder value will be able to present their investment story to investors in the best light. You should explain your company’s market position, its strategy, how it is being managed to deliver shareholder value and the nature of activities that drive value creation.
Experience demonstrates that some of the most successful company IPOs are those where quality management have been in place for some time and have been able to prepare the business for an IPO. Quality of management is one of the most important criteria by which fund managers assess investment opportunities. Investors expect the board of directors and the management team to have an appropriate collective experience and expertise to run all areas of the business. Be prepared to justify your current board’s experience and structure.
Prior to an IPO your company may need to reconsider your company’s capital and organizational structure. Such structural changes may include the sale of non-core assets and/or business, or the simplification of legal and/or general corporate tax planning measures. The resulting corporate structure can raise issues of how the financial information is best presented to investors while at the same time complying with regulatory requirements. Early advice should be sought for issues arising in this area.
Effective corporate governance is the core of an efficient market economy. This requires shareholders to have the information, rights, and practical ability to influence management through the governance process in order to ensure that the company’s assets are being used fairly in the interests of all financial stakeholders. This involves both an efficient internal financial reporting system and controls, and external legal and regulatory mechanisms. If investors are unable to evaluate governance risk, they are likely to be reluctant to invest or they will require a significant premium to mitigate uncertainty. In many cases where the investor is unable to evaluate the risks associated with governance practices, equities may be inaccurately assessed. This disadvantages the company and raises the cost of capital. Market participants have numerous and vivid examples that show that poor corporate governance can destroy value.
The quality and standard of reporting demanded by the investment community and regulatory authorities is high. Institutional investors, both during and after the IPO, will require accurate financial and nonfinancial information to be produced efficiently and on a timely basis. The benchmark is extremely high. The investment community expect and the regulatory authorities require, a company to publish periodic financial and other information within tight time frames as well as publishing all price sensitive information immediately.
Russian IPOs: Expectations and Reality
Since 2004, the Russian market has seen a real breakthrough in Russian companies’ initial public offerings and secondary placements in key sectors of the economy. The retail and consumer goods companies were particularly active, having pioneered the Russian IPO path with IPOs of the Seventh Continent, Lebedyansky, Pyaterochka and Magnit. We saw an increased number of landmark deals in other sectors, such as telecoms, metals & mining, oil & gas, energy and banking sector in 2006-2007, with multibillion Rosneft and VTB IPOs that once more proved a healthy demand from both domestic and international investors.
The Russian market is clearly coming of age, now fulfilling its primary function – providing capital for the growing local companies and facilitating further corporate expansion.
Last year Russian companies and those with assets in Russia raised in total $13 billion during IPOs with both international and local listings (LSE, NYSE, AIM, NASDAQ, RTS and MICEX).
The record number of IPOs in 2006 allowed us to speak about a sustained boom in capital markets activity among local companies and expect further growth in both numbers and volumes of IPO deals. 2007 showed this to be just the beginning as London alone saw $13.3 billion of Russian IPOs and the Russian market listings totaled $6.5 billion.
Companies representing new sectors of the Russian securities market, such as real estate, have been entering the IPO market recently with Europe’s largest real estate IPO of PIK group ($1.9 billion IPO), making investors see more exciting opportunities in the Russian market.
We see mid-cap and regional companies becoming more active on the local level that should be a potential source of more deals, especially on the domestic market. This is a positive sign for the Russian securities market, clearly showing that the local market is strong with real liquidity, which is why we can expect more and more IPOs with local listings on the RTS and MICEX.
However, investment bankers are cautious in their forecasts of IPO results in the coming months of 2007, with investors showing less activity than was earlier expected for the second half of 2007.
With investors being under pressure with the current situation in the US financial market and its inevitable impact on the global markets, it is quite understandable that the investor community prefers to wait and see how the situation develops in the nearest future. Meanwhile, the markets have evidenced a “flight to safety”.
The market is holding its breath while waiting for the coming macroeconomic statistics, The Federal Reserve rate revision and evidence of the recent crisis’ impact on the real sector of the economy which might influence the situation on international markets. In case of a consistent negative news flow coming in the next one to two months the situation might aggravate. And this will mean that investors will have to be patient and wait until markets improve.
The positive news for Russian companies is good fundamentals of the Russian economy. It is strong and showing healthy 7 percent annual growth and the macroeconomics forecasts for the next 5 years remain very positive for Russia. Experts say that the mid- and long-term domestic market will not be affected by the situation on the western markets.
Therefore, sooner or later investors will realize that Russia’s growing economy is the place to be to benefit from strong results of the Russian companies and promising perspectives of Russian IPO activity.
Legal Aspects of IPOs in Russia in 2008 (стр.119-120)
A dark cloud hangs over international debt and equity markets from the credit crunch and recent political developments, but many Russian companies are still considering an IPO as one of their strategic goals.
Due to investors becoming more selective, it is important to structure the business and the issuer’s internal procedures based on best practices. An IPO in Russia is usually preceded by meticulous and considerable legal restructuring, legal separation of major shareholders’ transactions from the company’s business, implementation of appropriate corporate governance principles and bringing financial statements into compliance with international standards. For a company to be successful in the public market it is very important to discover and mitigate potential legal risks and to have a well-thought-out strategy that can be legally implemented. At the preparation stage, legal aspects are one of the decisive factors determining the jurisdiction and stock exchange for the listing.
Moreover, in May 2008, a new law regulating foreign investments in commercial organizations of strategic importance for Russian national defence and state security came into force. This law is already having a significant impact on transactions and IPO plans of companies operating in such strategic sectors in Russia. Potentially, it can affect not only foreign “controlling” investors, but also foreign and Russian minority investors, because non-compliance of the foreign “controlling” shareholder can lead to invalidation of the day-to-day business transactions of Russian issuers.
Tax considerations are important for any Russian IPO and any public company. A public company in Russia cannot afford to use tax optimization schemes that might be acceptable for some private businesses. In addition, consolidation of operating businesses and assets under an IPO vehicle requires a thorough tax analysis to mitigate any past risks and to avoid any negative tax consequences for the public company in the future. In many cases, the choice of jurisdiction for an IPO vehicle is driven by tax considerations.
Generally, legal and tax risks are perceived to be much higher in Russia than in countries with established market economies. The government is putting considerable efforts into developing the Russian capital market. Nevertheless, the Russian legal environment for IPOs requires significant reformation. In particular, the general disclosure principles, as well as the registration and prospectus requirements have to be carefully revised. Modern IPO is not just about selling shares to raise money from investors. In exchange for the investors’ money, the issuers, as public companies, are supposed to disclose financial results, and all other information which is material to an investor’s decision to invest or which is necessary to prevent disclosures from being misleading or deceptive. After the IPO, public companies should also provide such information on an ongoing basis. Fair and reliable information about operations of public companies helps to correctly assess the issuer’s business, its competitors, the industry and eventually allow an assessment of the economy, the country and its place in the world.