‘Investors Need to Be Buttered Up’

The enhancement of the role of equity finance is a key strategic priority for the development of the Russian financial market and the economy. To achieve this, it is necessary to stimulate companies’ interest in offering their shares on exchanges and investors in buying these shares. Although retail investors make up the majority in the Russian equity market, the general public mostly prefer conventional savings products, such as deposits. Companies also have not been particularly active in public offerings.

Ways to increase the capitalisation of the Russian equity market from the current 27% (link in Russian) of GDP to 66% by 2030 as per the Executive Order of the Russian President (link in Russian) were discussed by participants in the Financial Congress of the Bank of Russia. Econs presents a digest of their speeches.

Alexey Timofeev, President of NAUFOR (the National Association of Securities Market Participants):

• The market concentration is high, as it is dominated by 209 companies. This is a small number. It has not changed in recent years. The market share of the 10 largest companies by market capitalisation is 63%, and that of three industries is 83%, with 10 companies accounting for 63% of trading volumes.
• To achieve the target by 2030, IPOs should total ₽1.3 trillion a year over the next six years, which is 16 and 5 times as much as in 2024 and 2021, respectively.
• At the moment, we can only rely on domestic investors. To draw retail investors to the equity market, it is necessary to encourage investment in investment unit funds (UIFs) rather than in deposits. The Russian financial market is significantly skewed towards deposits, with 70% of household investment in the financial market being placed in them. Individual investment accounts are unpopular now, and will become even less attractive as soon as their maturities become subject to annual  extension (link in Russian) from 2027.
• Institutional investors are important drivers of the financial market development. However, their current contribution is insufficient.

Viktor Zhidkov, Chairman of the Executive Board of the Moscow Exchange:

• Household liquid assets are worth ₽103 trillion. Surely, this amount is enough to buy some shares. So obviously, there is something preventing people from doing that. Therefore, it is necessary to increase market confidence and promote equity instruments households may safely invest in.
• To develop the market means in part to educate companies and navigate them away from a notion that taking a loan is the only way to develop business. IPO is a conventional method to separate management and ownership and educate investors.

Vladimir Chistyukhin, First Deputy Governor of the Bank of Russia:

• Numerous products have been created to encourage retail investment. These include third type individual investment accounts ( IIA-3; link in Russian) and a  long-term savings programme (link in Russian). In addition, a  long-term life insurance programme is now available on the market. The programme may serve as grounds for long-term investment and development of the capital market.
• Issuers’ focus should be shifted from taking familiar bank loans to placing their equity securities. There is a state subsidy programme for corporations that raise loans. It would be good if similar incentives were offered to those companies that go public. The Russian Ministry of Finance has made a great progress in this area in cooperation with the Bank of Russia. As far as I know, there is little left to be done before the relevant decision is made.
• Another important issue that has been successfully settled is a payment of compensation for IPO and bond offering costs incurred by small and medium-sized enterprises. Moreover, we have very high expectations for the government’s decision to incentivise state-owned companies to go public. It will be a very important step forward in increasing market capitalisation. However, it requires serious preparations that will take 18 to 24 months.
• Neither companies nor investors are the main stakeholder of capital market development. It is the government, since it needs long-term resources to transform the economy. The government should set up its investment environment in such a way that long-term projects are financed from equity through raising investor capital rather than bank loans. In this sense, policymakers should butter up investors, or in other words, create the best possible conditions in every aspect. That is why we think it is crucial to build confidence in the capital market.

Anatoliy Aminov, Deputy General Director, Member of the Management Board of PJSC LC Europlan (a leasing company that raised ₽13.1 billion in 2024 through IPO on the Moscow Exchange):

• One of the challenges to the development of the market is the Russian President’s instruction to raise the minimum amount of criminal damage arising from the use of insider information and market manipulation to ₽100 million. By doing so, we may undermine the confidence of the investors that we want to draw to the market. In 2024, nine court decisions were issued in relation to such cases, and only in two of them did the amount of criminal damage exceed ₽100 million.

Denis Shulakov, First Vice-President of Gazprombank:

• Embedding IPOs in our business culture is a very serious job that cannot be accomplished through capitalisation. Why would companies wish to hold IPOs? Because they understand why they need to float public. First of all, IPOs imply competition for a permanent source of capital, or permanent debt. Who would you readily lend to on a permanent basis if you are sure that it would be better than 20% on a deposit? Equity goes to businesses that have potential for growth that should be unlocked.

Mikhail Avtukhov, Deputy Chairman of the Management Board of Sovcombank:

• The current high interest rates certainly prevent companies from going public, but lower inflation is very likely to trigger a profound revaluation in the equity market and an increase in capitalisation. I am not saying that companies may sit back and do nothing. I mean that this circumstance might be a major asset and a tailwind in the future, but at the moment, we are still facing headwinds.
• Companies have to spend hundreds of millions on transforming their entire businesses to float public, introducing corporate governance principles, and establishing independent boards of directors. The easiest and most effective way to encourage them to go public is to reduce profit tax.