What factors in the capital market in 2024 do you consider most decisive for the market's development trajectory? How did they actually affect the capital market?
Dmitry Rumyantsev:
— I suppose 2024 must be recognized as very heterogeneous. From January to April, the market was dominated by a consensus on the possibility of a key rate cut this year, which allowed for a number of hype-driven IPOs where demand from retail investors prevailed, and the main concern was low allocation for rising Russian assets. Since May of this year, the Russian stock market entered a correction phase, and the tightening of the Central Bank's rhetoric, and subsequently its monetary policy, led to a shift in investor interest from the stock market to deposits and floating-rate debt instruments, significantly reducing retail investors' interest in the stock market.
Mikhail Malinovsky:
— If we characterize the current year briefly, it would look like this: firstly, it's the continuation of the trend towards unlocking the potential of investments by individuals. The number of brokerage accounts has already reached 35 million. Private investors continue to be the market driver. Accordingly, both in terms of instrument marketing and placement structure, trends at the beginning of the year were shaped by a focus on private investors.
Secondly, the dynamic development of the floaters market — companies started offering them more as soon as it became clear in early summer that the rate movement would be upward and aggressive — this is a characteristic of mid-summer.
A third trend is forming now — there's a feeling that the rate is probing its historical highs, and investors are being offered instruments focused on OFZs [Federal Loan Bonds] with a fixed rate and embedded leverage, as an option on a key rate cut in the medium term and a play on long duration.
Dmitry Rumyantsev:
— What we see at the moment is a divergence of spreads or "fair" compensation for credit quality. To a certain extent, the market is overestimating the credit quality of borrowers in the current environment and their ability to service debt and carry out effective refinancing. If in early autumn spreads for low-quality debt, i.e., below Triple B and OFZs, were in the range of 4-6%, now the spread reaches 10%, which, in general, also factors in a new reality.
In December, the market also expects the substitution of the Ministry of Finance's sovereign Eurobonds on the Russian market, which, theoretically, due to oversupply from arbitrageurs who bought the securities in the external circuit, could create interesting currency yields on sovereign debt and might partially shift interest to currency instruments.
What long-term trends emerged this year, and how long might they last?
Mikhail Malinovsky:
— I think right now no one dares to make long-term forecasts, but we can already speak of a new quality in the market. Accordingly, a high rate in the medium term will most likely create a certain wave of defaults.
Dmitry Rumyantsev:
— We have historically been involved in restructurings for the last 20 years. I think these restructurings will follow new canons. I remember the default markets of 2009, 2014. In 2014, the general meeting of bondholders and the Bondholders' Representative (PBO) appeared, and the restructuring market changed significantly in the category from 2014 to 2022. And now, from 2022, a new practice will be established, which will be forced to take into account the significant role of retail investors in the distribution structure.
Let me remind you that for the purposes of conducting a restructuring, a resolution of the general meeting of bondholders will be required, which in this case is adopted by a three-quarters majority vote by persons entitled to vote at the general meeting. Accordingly, the issue of gathering the required quorum in retail issues will become a key "headache" after finding acceptable commercial restructuring terms. Unfortunately, unlike in Eurobond practice in recent years, the concept of a lowering quorum for a repeated vote is not applicable, which could deadlock the restructuring process. In any case, restructurings will be more informative for the market. This is an absolutely new, interesting market. Often, if investors correctly enter restructured papers, they get the opportunity to earn up to 100%.
Mikhail Malinovsky:
— Secondly, for individuals as a driving force in the market, participation in "quasi-equity" instruments is interesting. Our team is currently preparing about four pre-IPO funded deals, which will be financed, among other things, through bond issues. This will provide investors with the opportunity to participate in the growth of share capital value, have the opportunity to receive interest income and 100% allocation in those IPOs that will occur in two or three years. A new niche of products between the DCM and ECM markets is now emerging.
Otherwise, long-term trends will be determined by factors of a geopolitical nature, including the ongoing trend of import substitution, which will set the trend for macroeconomics and changes in interest rate dynamics. If we are entering a "high-rate era" for a long time, then we might observe, in some cases, a revival of the practice of issuing financial instruments used for settlements with suppliers and contractors. This might be interesting for AAA companies that cannot abandon the implementation of giant investment programs.
Do you expect an increase in the number of defaults in 2025? If this wave comes, will it be next year or later? What measures could be proposed to the market in connection with such a risk?
Mikhail Malinovsky:
— I would look broader. There is a term in corporate finance called liability management — a kind of work with existing public debt, including in a high-rate environment. What can be offered here? Suppose there is a category of borrowers who are unlikely to survive the era of high rates. They will go into default. Defaults usually end with two scenarios: either restructuring or potential bankruptcy. And bankruptcy means selling the asset to those with stronger financial stability, i.e., those who have accumulated a "cash cushion."
Therefore, the first period of defaults is actually potential for the M&A market, when assets of companies that cannot undergo restructuring pass into the hands of those who were better prepared for this season. On the other hand, one can also work with a high rate. Liability management involves approaching key investors with a proposal to change the issue terms. We saw such deals with, for example, "Rosnano." Moreover, given the significant dispersion of retail investors, an uneven approach to institutional and retail investors may become a forced measure.
What can companies do in this case? If we are talking about private companies, they can offer to embed their debt instruments (linear with a fixed rate) or the possibility of payment deferral, applying a floating interest rate in return. They can offer to "sew" some options into the bond. They can offer the possibility of participation in future profits. There is a toolkit for all this.
Dmitry Rumyantsev:
— About the Eurobond market. Since 2022, we have participated in restructurings and documentation changes for more than 50 Eurobond issues, providing not only the function of a legal consultant but also of a trustee, information and tabulation agent. This was due to the non-functioning Western infrastructure and the need to realize bondholders' rights. There are very interesting functions of the information agent, which we also performed. This is the function where an independent agent communicates the terms of a future restructuring or changes to an issue. This is what a restructuring agent usually does in Russia, but in Eurobond practice, a separate figure and, accordingly, experience in holding meetings emerges, where a tabulation agent acts as infrastructure to validate the will of certain participant parties.
On the debt capital market, certain elements of structured finance have become particularly popular recently, including the use of a Specialized Financial Society (SFO) structure. What do you associate this trend with and how do you assess its development prospects?
Mikhail Malinovsky: — We have long dreamed of doing this business. Since 2022, a management company has appeared in our ecosystem, which has allowed us to offer clients comprehensive and complex turnkey products in the structured finance market. Currently, the management company has over 45 SFOs with diverse underlying assets under management. The key advantage of such SFOs is maximum flexibility and protection of bondholders' rights. Conventionally, the SFO market can be divided into two categories.
1) Club deals, tailored to a pre-defined pool of anchor investors. In such deals, investors are provided with the broadest scope of rights, including corporate rights in relation to such an asset. In this case, SFOs become serious competitors to mutual funds (PIFs). Such SFOs, in particular, can be used to finance M&A and carry out complexly structured transactions.
2) The second type of SFO deals are deals offered to a broader group of persons, for example, qualified investors, which are linked to market assets or shares of companies preparing to go public. Such SFOs issue structured bonds, the yield of which is linked to traded assets, indices, shares, commodity market assets, as well as off-balance sheet convertible bonds, which the SFO can redeem by delivering a block of shares upon the company's IPO. Such SFOs will potentially be used in IPO financing. Our company is already advising on such deals.
How do you assess the increasing role of specific fiduciary services (here I mean information agent, tabulation agent, public market interaction agent, and Bondholders' Representative (PBO)) in the capital market? What could be the developments in this service segment?
Dmitry Rumyantsev:
— For us, this is a super interesting market. We have been working in the bondholders' representative services market since its inception. Our company in this capacity services probably half of the issues on the market, which is exactly why we have developed such systemic connections with investors — individuals. Our specialists know how to communicate with them, are attentive to their requests, and become an effective "bridge." It is thanks to the accumulated experience in this market that we were able to offer Russian borrowers the functionality of an information and tabulation agent for Eurobonds, which has proven to be extremely in demand on the current market.
Mikhail Malinovsky:
— It is now evident that the role of retail investors is growing significantly both in the debt market segment and in the equity capital market. In a large number of deals, one can see tens of thousands of retail investors in a single issue, to whom the essence of a certain corporate action (bond issue restructuring, obtaining a covenant waiver, buyback of shares/bonds) needs to be conveyed; a slightly different focus is needed compared to an initial placement. In such cases, the functionality of the bondholders' representative has proven very useful. If through a large bank — a restructuring agent — it can be quite difficult for an individual to reach the issuer, because large banks are not tailored to work with such a dispersed market, then our bondholders' representative恰恰 loves and knows how to do this. Therefore, there is a whole set of deals where we shared the functionality, taking on precisely the function of communication with the broad retail market. We have already accumulated tens of thousands of investor contacts who follow our disclosures and with whom we are happy to communicate in the interests of the deal to make it happen.
How, in your opinion, has the primary equity offering changed over the past two years? And how strongly does the current monetary policy influence the exit of new companies to the market?**
Mikhail Malinovsky:
— We can state that this is a completely new era. The complexity of deals doubles every year. Since February 2022, we have seen a mass exodus of both international consultants and international banks from this market. Companies no longer focus on foreign platforms in terms of corporate governance compliance or in terms of attracting liquidity. The Russian investor was usually quite seriously subordinated to large funds, with whom key companies were happy to communicate. If a roadshow before was, say, offline meetings with 30-50 of the largest funds in Switzerland, Scandinavia, England, and America, then today a roadshow is communication through modern channels (Telegram channels, stream broadcasts), which, in fact, is quite good. This makes deals much more lively and forces the issuer to be broadly public and interesting to the general public.
Compared to previous practice, issuers are forced to publicly provide more specific guidance on future financial indicators, disclose significant aspects of the financial model, and share an industry report in the public space. This depth of disclosure imposes an additional level of responsibility and obligations on the issuer. Mainly over the past two years, a large number of interesting new mid-cap stories from sectors such as IT, pharma, retail, and e-commerce have come to the market.
Unfortunately, on the Russian market, one can state a limited number of institutional investors participating in the primary market; moreover, the amount of funds they allocate to the stock market is extremely low compared to the capitalization of the Russian market. It is also worth noting that the wave-like demand from retail investors is due, on the one hand, to tight monetary policy, and on the other hand, to uneven access to information, for example, in terms of research, as well as significantly lower allocation compared to institutional investors.
The fundamental value of companies, calculated based on NPV, is extremely sensitive to tight monetary policy and, accordingly, high WACC, which allows for compromise valuation figures only under conditions of multiple future company growth. Today's communication of a pre-IPO equity issuer with the market is, of course, still communication with institutions, of which there are not many on the market. It is also advertising on television, communication through blogger channels, and building their own investment platforms, for example, holding Investor Days where the company immerses a broad audience in the essence of its business.
In terms of increasing the level of deal complexity, we can say that in 2023 we developed our own documentation ensuring compliance with rules on restricting the sale of shares by key shareholders during the stabilization period that usually follows a deal, in the form of lock-up agreements. Starting around spring of last year, our company has advised on five such deals. And in these deals, we performed, in addition to the function of legal consultant, such an interesting function as gatekeeper of information. We ourselves conducted company due diligence, wrote and registered the prospectus, so it was natural for us to perform the function of verifying marketing materials and disclosed company information. This is a new agency function that is now characteristic of law firms. And of course, it is very interesting because it allows for a deeper dive into the essence of the business and, overall, forms a new quality for the Russian IPO advisory market.
What do you expect from the next year for the pre-IPO, IPO market? And what new products might be in demand?
Dmitry Rumyantsev:
— It will still depend on the rate. At the same time, the stock market will remain a market of growing companies; investors are interested in companies capable of demonstrating stable and/or multiple growth, capable of implementing a full-scale import substitution strategy, and providing new and innovative products to the market. But, comparing the current situation with the experience of recent years, we also expect the entry to the market of a number of "heavyweights." For example, there is information that the Ministry of Finance plans to bring some companies out of the state portfolio (we are talking about the development institution DOM.RF). These are, first of all, those companies that the market has long been waiting for; one could say this is a new round of privatization. Furthermore, we expect that Rosimushchestvo might also start bringing companies to the market. Accordingly, there will be a new supply of equity offerings from the state. Rosimushchestvo might bring to market shares of companies that were bought from foreigners and which are still better managed by private capital than held in the state property portfolio.
Mikhail Malinovsky:
— In terms of demand, we see at least 20 companies that postponed their deals from autumn and potentially moved them to next year, so-called "deferred offerings." If the rate goes down or if, at least, the market adapts to the current rate, I think these deals will be realized. If monetary policy changes and the rate goes even lower, and money returns from deposits to the stock and bond market, then most likely we could see equity offerings from up to 50 companies. The "bottleneck" here is precisely the infrastructure issue, because there are not many teams on the market that know how to organize deals, advise them qualitatively, and execute them. I would say, six to eight. This means that for them, this part of the issue is rather the market limiter in case of a rate cut.
In terms of the pre-IPO market, since the potential launch of the MOEX Start project on the Moscow Exchange, we see requests from about two or three companies per week wanting to list on this platform. What's the downside here? Companies are usually quite "raw": both the preparation of the financial model and the validation of potential value for admission take about two months with an uncertain result. So far, we don't see many such companies: about 20 could potentially enter the Moscow Exchange's pre-IPO financing market.
Mikhail Malinovsky:
— Firstly, in my opinion, in a high-rate environment, there is a certain mechanism for its reduction in the form of embedding built-in options into the instrument, including for those goods that the company sells. Here we can return to the practice of issuing bonds that can be redeemed, for example, by gold miners through a calculated delivery of gold. The first question is bonds with embedded options, in particular with an option on declaring some index for financial organizations.
For financial organizations, this could become a potential opportunity for securitization of their financial asset. Many questions on the topic of portfolio securitization arise from microfinance organizations. These could be bonds that are redeemed using goods produced by the company itself. Of course, these goods must have a market quotation, for example, gold. These could be bonds placed by large state monopolies to finance investment programs for their contractors. That is, it's a kind of deferred payment for delivered goods or work performed. Within large investment programs, I think such things can be offered by companies on the scale of natural monopolies.
What new opportunities or limitations in the capital market do you forecast for 2025?
Mikhail Malinovsky:
— Given the growing number of companies on the public market, as well as tight monetary policy, we forecast a significant increase in competition for investor attention. In this regard, we believe that companies will begin to use new IR strategies to retain and attract an investor base. Also, in conditions of growing competition, corporate governance requirements must meet new conditions. We can say with confidence that 2025 promises to be interesting for the market. In a fast-changing market, we expect the emergence of new instruments and bright deals next year.
Dmitry Rumyantsev:
— I suppose 2024 must be recognized as very heterogeneous. From January to April, the market was dominated by a consensus on the possibility of a key rate cut this year, which allowed for a number of hype-driven IPOs where demand from retail investors prevailed, and the main concern was low allocation for rising Russian assets. Since May of this year, the Russian stock market entered a correction phase, and the tightening of the Central Bank's rhetoric, and subsequently its monetary policy, led to a shift in investor interest from the stock market to deposits and floating-rate debt instruments, significantly reducing retail investors' interest in the stock market.
Mikhail Malinovsky:
— If we characterize the current year briefly, it would look like this: firstly, it's the continuation of the trend towards unlocking the potential of investments by individuals. The number of brokerage accounts has already reached 35 million. Private investors continue to be the market driver. Accordingly, both in terms of instrument marketing and placement structure, trends at the beginning of the year were shaped by a focus on private investors.
Secondly, the dynamic development of the floaters market — companies started offering them more as soon as it became clear in early summer that the rate movement would be upward and aggressive — this is a characteristic of mid-summer.
A third trend is forming now — there's a feeling that the rate is probing its historical highs, and investors are being offered instruments focused on OFZs [Federal Loan Bonds] with a fixed rate and embedded leverage, as an option on a key rate cut in the medium term and a play on long duration.
Dmitry Rumyantsev:
— What we see at the moment is a divergence of spreads or "fair" compensation for credit quality. To a certain extent, the market is overestimating the credit quality of borrowers in the current environment and their ability to service debt and carry out effective refinancing. If in early autumn spreads for low-quality debt, i.e., below Triple B and OFZs, were in the range of 4-6%, now the spread reaches 10%, which, in general, also factors in a new reality.
In December, the market also expects the substitution of the Ministry of Finance's sovereign Eurobonds on the Russian market, which, theoretically, due to oversupply from arbitrageurs who bought the securities in the external circuit, could create interesting currency yields on sovereign debt and might partially shift interest to currency instruments.
What long-term trends emerged this year, and how long might they last?
Mikhail Malinovsky:
— I think right now no one dares to make long-term forecasts, but we can already speak of a new quality in the market. Accordingly, a high rate in the medium term will most likely create a certain wave of defaults.
Dmitry Rumyantsev:
— We have historically been involved in restructurings for the last 20 years. I think these restructurings will follow new canons. I remember the default markets of 2009, 2014. In 2014, the general meeting of bondholders and the Bondholders' Representative (PBO) appeared, and the restructuring market changed significantly in the category from 2014 to 2022. And now, from 2022, a new practice will be established, which will be forced to take into account the significant role of retail investors in the distribution structure.
Let me remind you that for the purposes of conducting a restructuring, a resolution of the general meeting of bondholders will be required, which in this case is adopted by a three-quarters majority vote by persons entitled to vote at the general meeting. Accordingly, the issue of gathering the required quorum in retail issues will become a key "headache" after finding acceptable commercial restructuring terms. Unfortunately, unlike in Eurobond practice in recent years, the concept of a lowering quorum for a repeated vote is not applicable, which could deadlock the restructuring process. In any case, restructurings will be more informative for the market. This is an absolutely new, interesting market. Often, if investors correctly enter restructured papers, they get the opportunity to earn up to 100%.
Mikhail Malinovsky:
— Secondly, for individuals as a driving force in the market, participation in "quasi-equity" instruments is interesting. Our team is currently preparing about four pre-IPO funded deals, which will be financed, among other things, through bond issues. This will provide investors with the opportunity to participate in the growth of share capital value, have the opportunity to receive interest income and 100% allocation in those IPOs that will occur in two or three years. A new niche of products between the DCM and ECM markets is now emerging.
Otherwise, long-term trends will be determined by factors of a geopolitical nature, including the ongoing trend of import substitution, which will set the trend for macroeconomics and changes in interest rate dynamics. If we are entering a "high-rate era" for a long time, then we might observe, in some cases, a revival of the practice of issuing financial instruments used for settlements with suppliers and contractors. This might be interesting for AAA companies that cannot abandon the implementation of giant investment programs.
Do you expect an increase in the number of defaults in 2025? If this wave comes, will it be next year or later? What measures could be proposed to the market in connection with such a risk?
Mikhail Malinovsky:
— I would look broader. There is a term in corporate finance called liability management — a kind of work with existing public debt, including in a high-rate environment. What can be offered here? Suppose there is a category of borrowers who are unlikely to survive the era of high rates. They will go into default. Defaults usually end with two scenarios: either restructuring or potential bankruptcy. And bankruptcy means selling the asset to those with stronger financial stability, i.e., those who have accumulated a "cash cushion."
Therefore, the first period of defaults is actually potential for the M&A market, when assets of companies that cannot undergo restructuring pass into the hands of those who were better prepared for this season. On the other hand, one can also work with a high rate. Liability management involves approaching key investors with a proposal to change the issue terms. We saw such deals with, for example, "Rosnano." Moreover, given the significant dispersion of retail investors, an uneven approach to institutional and retail investors may become a forced measure.
What can companies do in this case? If we are talking about private companies, they can offer to embed their debt instruments (linear with a fixed rate) or the possibility of payment deferral, applying a floating interest rate in return. They can offer to "sew" some options into the bond. They can offer the possibility of participation in future profits. There is a toolkit for all this.
Dmitry Rumyantsev:
— About the Eurobond market. Since 2022, we have participated in restructurings and documentation changes for more than 50 Eurobond issues, providing not only the function of a legal consultant but also of a trustee, information and tabulation agent. This was due to the non-functioning Western infrastructure and the need to realize bondholders' rights. There are very interesting functions of the information agent, which we also performed. This is the function where an independent agent communicates the terms of a future restructuring or changes to an issue. This is what a restructuring agent usually does in Russia, but in Eurobond practice, a separate figure and, accordingly, experience in holding meetings emerges, where a tabulation agent acts as infrastructure to validate the will of certain participant parties.
On the debt capital market, certain elements of structured finance have become particularly popular recently, including the use of a Specialized Financial Society (SFO) structure. What do you associate this trend with and how do you assess its development prospects?
Mikhail Malinovsky: — We have long dreamed of doing this business. Since 2022, a management company has appeared in our ecosystem, which has allowed us to offer clients comprehensive and complex turnkey products in the structured finance market. Currently, the management company has over 45 SFOs with diverse underlying assets under management. The key advantage of such SFOs is maximum flexibility and protection of bondholders' rights. Conventionally, the SFO market can be divided into two categories.
1) Club deals, tailored to a pre-defined pool of anchor investors. In such deals, investors are provided with the broadest scope of rights, including corporate rights in relation to such an asset. In this case, SFOs become serious competitors to mutual funds (PIFs). Such SFOs, in particular, can be used to finance M&A and carry out complexly structured transactions.
2) The second type of SFO deals are deals offered to a broader group of persons, for example, qualified investors, which are linked to market assets or shares of companies preparing to go public. Such SFOs issue structured bonds, the yield of which is linked to traded assets, indices, shares, commodity market assets, as well as off-balance sheet convertible bonds, which the SFO can redeem by delivering a block of shares upon the company's IPO. Such SFOs will potentially be used in IPO financing. Our company is already advising on such deals.
How do you assess the increasing role of specific fiduciary services (here I mean information agent, tabulation agent, public market interaction agent, and Bondholders' Representative (PBO)) in the capital market? What could be the developments in this service segment?
Dmitry Rumyantsev:
— For us, this is a super interesting market. We have been working in the bondholders' representative services market since its inception. Our company in this capacity services probably half of the issues on the market, which is exactly why we have developed such systemic connections with investors — individuals. Our specialists know how to communicate with them, are attentive to their requests, and become an effective "bridge." It is thanks to the accumulated experience in this market that we were able to offer Russian borrowers the functionality of an information and tabulation agent for Eurobonds, which has proven to be extremely in demand on the current market.
Mikhail Malinovsky:
— It is now evident that the role of retail investors is growing significantly both in the debt market segment and in the equity capital market. In a large number of deals, one can see tens of thousands of retail investors in a single issue, to whom the essence of a certain corporate action (bond issue restructuring, obtaining a covenant waiver, buyback of shares/bonds) needs to be conveyed; a slightly different focus is needed compared to an initial placement. In such cases, the functionality of the bondholders' representative has proven very useful. If through a large bank — a restructuring agent — it can be quite difficult for an individual to reach the issuer, because large banks are not tailored to work with such a dispersed market, then our bondholders' representative恰恰 loves and knows how to do this. Therefore, there is a whole set of deals where we shared the functionality, taking on precisely the function of communication with the broad retail market. We have already accumulated tens of thousands of investor contacts who follow our disclosures and with whom we are happy to communicate in the interests of the deal to make it happen.
How, in your opinion, has the primary equity offering changed over the past two years? And how strongly does the current monetary policy influence the exit of new companies to the market?**
Mikhail Malinovsky:
— We can state that this is a completely new era. The complexity of deals doubles every year. Since February 2022, we have seen a mass exodus of both international consultants and international banks from this market. Companies no longer focus on foreign platforms in terms of corporate governance compliance or in terms of attracting liquidity. The Russian investor was usually quite seriously subordinated to large funds, with whom key companies were happy to communicate. If a roadshow before was, say, offline meetings with 30-50 of the largest funds in Switzerland, Scandinavia, England, and America, then today a roadshow is communication through modern channels (Telegram channels, stream broadcasts), which, in fact, is quite good. This makes deals much more lively and forces the issuer to be broadly public and interesting to the general public.
Compared to previous practice, issuers are forced to publicly provide more specific guidance on future financial indicators, disclose significant aspects of the financial model, and share an industry report in the public space. This depth of disclosure imposes an additional level of responsibility and obligations on the issuer. Mainly over the past two years, a large number of interesting new mid-cap stories from sectors such as IT, pharma, retail, and e-commerce have come to the market.
Unfortunately, on the Russian market, one can state a limited number of institutional investors participating in the primary market; moreover, the amount of funds they allocate to the stock market is extremely low compared to the capitalization of the Russian market. It is also worth noting that the wave-like demand from retail investors is due, on the one hand, to tight monetary policy, and on the other hand, to uneven access to information, for example, in terms of research, as well as significantly lower allocation compared to institutional investors.
The fundamental value of companies, calculated based on NPV, is extremely sensitive to tight monetary policy and, accordingly, high WACC, which allows for compromise valuation figures only under conditions of multiple future company growth. Today's communication of a pre-IPO equity issuer with the market is, of course, still communication with institutions, of which there are not many on the market. It is also advertising on television, communication through blogger channels, and building their own investment platforms, for example, holding Investor Days where the company immerses a broad audience in the essence of its business.
In terms of increasing the level of deal complexity, we can say that in 2023 we developed our own documentation ensuring compliance with rules on restricting the sale of shares by key shareholders during the stabilization period that usually follows a deal, in the form of lock-up agreements. Starting around spring of last year, our company has advised on five such deals. And in these deals, we performed, in addition to the function of legal consultant, such an interesting function as gatekeeper of information. We ourselves conducted company due diligence, wrote and registered the prospectus, so it was natural for us to perform the function of verifying marketing materials and disclosed company information. This is a new agency function that is now characteristic of law firms. And of course, it is very interesting because it allows for a deeper dive into the essence of the business and, overall, forms a new quality for the Russian IPO advisory market.
What do you expect from the next year for the pre-IPO, IPO market? And what new products might be in demand?
Dmitry Rumyantsev:
— It will still depend on the rate. At the same time, the stock market will remain a market of growing companies; investors are interested in companies capable of demonstrating stable and/or multiple growth, capable of implementing a full-scale import substitution strategy, and providing new and innovative products to the market. But, comparing the current situation with the experience of recent years, we also expect the entry to the market of a number of "heavyweights." For example, there is information that the Ministry of Finance plans to bring some companies out of the state portfolio (we are talking about the development institution DOM.RF). These are, first of all, those companies that the market has long been waiting for; one could say this is a new round of privatization. Furthermore, we expect that Rosimushchestvo might also start bringing companies to the market. Accordingly, there will be a new supply of equity offerings from the state. Rosimushchestvo might bring to market shares of companies that were bought from foreigners and which are still better managed by private capital than held in the state property portfolio.
Mikhail Malinovsky:
— In terms of demand, we see at least 20 companies that postponed their deals from autumn and potentially moved them to next year, so-called "deferred offerings." If the rate goes down or if, at least, the market adapts to the current rate, I think these deals will be realized. If monetary policy changes and the rate goes even lower, and money returns from deposits to the stock and bond market, then most likely we could see equity offerings from up to 50 companies. The "bottleneck" here is precisely the infrastructure issue, because there are not many teams on the market that know how to organize deals, advise them qualitatively, and execute them. I would say, six to eight. This means that for them, this part of the issue is rather the market limiter in case of a rate cut.
In terms of the pre-IPO market, since the potential launch of the MOEX Start project on the Moscow Exchange, we see requests from about two or three companies per week wanting to list on this platform. What's the downside here? Companies are usually quite "raw": both the preparation of the financial model and the validation of potential value for admission take about two months with an uncertain result. So far, we don't see many such companies: about 20 could potentially enter the Moscow Exchange's pre-IPO financing market.
Mikhail Malinovsky:
— Firstly, in my opinion, in a high-rate environment, there is a certain mechanism for its reduction in the form of embedding built-in options into the instrument, including for those goods that the company sells. Here we can return to the practice of issuing bonds that can be redeemed, for example, by gold miners through a calculated delivery of gold. The first question is bonds with embedded options, in particular with an option on declaring some index for financial organizations.
For financial organizations, this could become a potential opportunity for securitization of their financial asset. Many questions on the topic of portfolio securitization arise from microfinance organizations. These could be bonds that are redeemed using goods produced by the company itself. Of course, these goods must have a market quotation, for example, gold. These could be bonds placed by large state monopolies to finance investment programs for their contractors. That is, it's a kind of deferred payment for delivered goods or work performed. Within large investment programs, I think such things can be offered by companies on the scale of natural monopolies.
What new opportunities or limitations in the capital market do you forecast for 2025?
Mikhail Malinovsky:
— Given the growing number of companies on the public market, as well as tight monetary policy, we forecast a significant increase in competition for investor attention. In this regard, we believe that companies will begin to use new IR strategies to retain and attract an investor base. Also, in conditions of growing competition, corporate governance requirements must meet new conditions. We can say with confidence that 2025 promises to be interesting for the market. In a fast-changing market, we expect the emergence of new instruments and bright deals next year.