Strategic Communication Management

UnknownJuliana Slaschyova President, Mikhailov and Partners
In 2005 to 2007, the global financial scene saw an upsurge of Russian public placements -- some 50 domestic corporations raised more than $50 billion on foreign and local stock exchanges. Over this short period, IPOs transformed from something abstract and exotic to a powerful corporate finance instrument available for companies of different sizes, industries and ownership structures.

The current year started with a drawdown in domestic IPO activity; many companies refused or postponed their public debuts following the turmoil and liquidity crisis in the U.S. and European financial markets. However, the hard times for the global financial sector are more or less in the past now, and Russia is viewed as one of the most attractive investment opportunities among the world's leading economies, demonstrating tremendous growth rates of GDP and stock market capitalization. In such favorable circumstances, we are confident that investor interest in new domestic stocks will recover very soon.

From year to year, we observed the growing complexity and maturity of the Russian IPO market with new trends coming in. The base of investors is getting more diversified, ranging from multibillion-dollar Western institutional funds and major domestic industrial and financial holdings to thousands of Russians making their first steps into the stock market. All those types of investors are increasingly scrupulous and demand the highest standards from domestic companies.

One of most important specifics of domestic placements is very significant valuations and comparative multiples that Russian companies receive in IPOs. That has been criticized by many experts saying that Russian stocks are unreasonably expensive; however, as time goes by, the multiples of domestic IPOs are only growing. In this situation, one of key issues for a company going to IPO and its advisers is to report an investment story to investors rightly and clearly, thus justifying its ambitious share price and very optimistic forecasts of revenues and profits.

The media landscape surrounding the Russian stock market and domestic IPOs in particular is changing as well. Recent placements were widely covered by domestic business publications and local journalists are now very well informed about even minor IPO matters and details. Satisfying their rising investigative demands and at the same time meeting the strict requirements of the placement process is a key challenge that companies face ahead of an IPO.

Another interesting trend that should be mentioned here is Moscow's increasing role as a geographic hub for domestic IPOs. This role is not limited to domestic stock exchanges, although both the RTS and MICEX are now effectively competing with the LSE. The whole focus of investor communications is moving to the Russian capital as it is the main location of key bankers, traders, analysts, consultants, journalists covering domestic stocks and, most crucially, directors and managers of Russian listed companies.

The trends and processes described above enhance the significance of investor relations and financial communications as key functions of a company going public. The efficiency of this function influences greatly the success of both a placement and post-IPO market performance. In one's turn, such efficiency is determined by accurate separation of roles and smart cooperation between a company and its IR advisor. The latter is always an essential participant of the whole IPO process, assisting in formulating and communicating key messages to investors in a professional manner. A reputable IR consultancy firm has a wide experience and helps a company avoid common mistakes and communication failures during an IPO that normally happen once in the company's lifetime.

With the transformation of Moscow into a regional financial center, we believe that there will be a much stronger demand for IR and financial PR agencies with a strong presence in Russia. These agencies better understand the specifics of the Russian investment community and media landscape and thus can provide a higher value-added to domestic corporations aiming to succeed in the stock market.