Roienko
V. V., Ph.D. Gritsenko
L. L.
State Higher Education Institution
“The Ukrainian Academy of Banking of The National Bank
of Ukraine”
IPO as an instrument in attracting investments
on foreign stock markets
In Ukraine, the main
sources of bringing in of facilities
for the development of domestic enterprises without changing ownership are lending and bond issue. Recently, a
growing popularity among issues raise capital through initial public offering
on the stock market.
An initial public offering
(IPO) referred to simply as an "offering" or "flotation,"
is when a company (called the issuer) issues common stock or shares to the
public for the first time. They are often issued by smaller, younger companies
seeking capital to expand, but can also be done by large privately-owned
companies looking to become publicly traded.
It is expedient to note
that on developed markets IPO is one of the most effective and the mechanisms
used to attract investment (approximately 15-20 % of all investments in
equity). The level of activity of the global IPO market in the first quarter of
2010 increased substantially. According to the company Ernst &Young, for January – March 2010 in the world 267 agreements
were celled to a total value of 53,2 billion
U.S. dollars,
whereas in the first quarter of last year result of 52 transactions were
involved 1.4 billion. U.S. dollars. Nine of the twenty largest
IPOs were from Asia (China, Japan and South Korea).
At the beginning of 2010
active interest to IPO in the world is shown by companies to the sector of
financial services (particularly insurance companies) − 31 % of the total funds raised from
initial public offering, to the sector of processing − 19 % and to the
sector of industrial production – 15 %.
Domestic IPO experience shows that the first IPO of
Ukrainian enterprises in the world stock market was in February 2005 sale of
27,2 % stake in dairy company Ukrproduct Group on Alternative Investment Market
London Stock Exchange.
The main
companies already committed issue IPO at the international market are:
1) Ferrexpo (in 2007, Main Market London Stock
Exchange);
2) Mironivsky Hliboproduct (in 2008, Main Market
London Stock Exchange);
3) XXI Century
(in 2005, Alternative Investment Market London Stock Exchange);
4) Astarta-Kyiv (in 2006, Warsaw Stock Exchange);
5) TMM (in 2007, Frankfurt Stock Exchange) and
other.
The
process of preparation and leadthrough of IPO lasts from 6 months to 1 year and involves the passage of seven stages. The
first stage
is an analysis that helps to estimate basic directions of activity of company to minimize risks when company
enters to the international capital markets. On this stage also define the
general degree of readiness of enterprise for open placement of securities. An important step on this stage is a
choice of site for stock IPO. Companies wishing to obtain a small amount of
financial resources (50-200 million), it is advisable to choose the Warsaw
Stock Exchange, and companies with greater capitalization will approach other
areas, in particular
stock exchanges in London, New York or Frankfurt.
The next step in preparing company's initial public
offering is a choice of underwriting,
the main tasks of which are: preparation
of analytical materials, development of plan and the
IPO scheme, coordination of work on preparation for IPO; interaction with
regulatory authorities, collecting bids from investors, ensuring the
implementation of the initial public offering, support the market after the
IPO.
Important role in preparing for initial
public offering is the implementation of valuation of assets and business of
the company, bringing its financial reporting to
international standards and the implementation of audit procedures to
confirm the reliability of financial reporting issuer in the information
memorandum and prospectus for the issue.
The fourth stage of
preparation for IPO companies should pay attention to improving corporate
governance, namely the increased number of independent directors within the
board, expansion of shareholder rights, etc.
The fifth step is the
agreement with the organizer of the IPO. The
leading role belongs to the lead manager (investment bank) that in order to
attract broader range of investors.
Sixth stage of preparing
the company for IPO involves the implementation of relevant legal information
and informative
steps.
The seventh stage of preparing the company for IPO, on the one hand,
completes the long process of entering the stock market for placement and on
the other – begins the new process of its integration in world businesses.
Notice that the IPO has a
number of positive and negative consequences. The benefits of the IPO as a way
of raising capital include:
− attracting
long-term investment;
−
maintaining a controlling stake in the holder;
− lack of capital outflows for the payment of
interest;
− increase the market value of the company;
− increase confidence in the company and attract new
partners and others.
In
turn, you can single out the IPO number of shortcomings:
− complexity and duration of the procedure of
preparation for IPO;
−
necessity
of attracting a wide range
of financial advisers, legal and tax issues that require significant financial
losses;
− dependence on
fluctuations in international financial markets, that, in same queue, draws financial impressionability
of enterprise;
− loss of privacy on the ownership structure of the company due to its publication
and so on.
IPO is a common practice
in the domestic stock market, however large the potential benefits of
introducing this mechanism for investments in domestic enterprises and for the
economy as a whole cause interest in the problems of the IPO both from the side
of companies and the state. For Ukraine, the principle is the settlement between
the state and business, strict application of EU law to the stock market and
requirements directly to companies planning IPO. For successful implementation of the IPO it is necessary to establish state control over the
market, improve the concept of stock exchange system and improve an investment
climate in the country.