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Zhakipbayev Kairat Tulegenovich, doctoral candidate of the DBA program Almaty Management University member of the Management Board of KEGOC JSC in 2008-2017 managing director, for legal support and risks E-mail: kairat_zhakip@mail.ru
ATTRACTIVENESS OF IPO AS A WAY TO TAP INVESTMENT
Abstract: Advantages of using an IPO for an additional capitalization of Kazakhstani companies. Keywords: IPO, shares, stock exchange, investments, company, privatization.
The procedure of IPO ("Initial Public Offering") is related to the need for the business owner to attract investment capital. Placing shares on the stock exchange is one of the main tools for financing the company's further development. Attracting financial resources during the IPO allows a purchase of assets that are necessary for expansion, which can not be bought from own funds and for which it is considered unprofitable to take out a loan. The IPO opens a way to cheaper sources of capital by increasing the level of publicity of the company; it reduces the cost of attracted finances, helps optimize the capital structure and obtain more efficient access to capital markets; and opens new opportunities for business development and market consolidation. For many companies, access to an IPO is a priority requirement of large shareholders who seek to increase profits and diversify the risks associated with the sale of their shares.
In the manual "procedure of the IPO in Russia" Balakirev N. N. and Davidenko L. P. notedthat "a positive relationship can be traced between the growth of the stock market and the growth of the purchasing power of the population." They main emphasis was made to the fact that "IPO contributes to the structural restructuring of the economy". Mass conduct of IPO promotes the flow of capital into the economy, the development of processing and knowledge-intensive industries. From the effectiveness point of view, the IPO market is an ideal tool of structural reform [1, 6-7].
Over the past 40 years, the global IPO market has experienced ups and downs, but its most significant growth was in the 1995-2000 period. In 1999, on the eve of the rapid development of IT companies about 2000 companies emerged into the global IPO market, which attracted approximately $200 billion. The IPO market experienced a significant decrease in the period of decline in stock markets at the beginning of the so-called zero years - the first decade of the 21st century. In the past eight years, there has been an increase in activity in this area in emerging market countries, particularly in Kazakhstan and other countries of the former Soviet Union.
Commenting on the first results of the "People's IPO" program, the President of the Republic of Kazakhstan, Nazarbayev noted, "We must involve the maximum number of citizens of Kazakhstan in the program, so that everyone can feel the growth of the economy through raising their own well-being". We need to define clear rules to be sure that the shares will go to the hands of the population, rather than to a few large and smart investors. Full transparency of all procedures and availability of information are required [2, 2-3].
The following main objectives of the IPO can be distinguished:
1. Large shareholders of a company get an opportunity to share risks with a large number of minority shareholders. They have greater maneuverability and efficiency in selling part of their shares and using the proceeds to develop new lines of business.
2. A much larger number of investors can be attracted through an IPO, the Company receives a certain independence from the will of the main investors, which allows to guarantee greater stability of its activities.
3. The presence of shares traded on the stock exchange provides an opportunity to get a more objective assessment of the company's value. A fair assessment of the value can be used to attract investment from other sources, as well as act as a guide for merger and acquisition transactions in the future.
4. As a rule, after a successful IPO, the liquidity of shareholders' capital sharply increases, and there are more opportunities for borrowing on the security of shares of public companies.
After the IPO, the company becomes public, the reporting - clear and transparent.
Andrey Tsalyuk, vice-president of the Kazakhstan Stock Exchange, said that "holding a series of IPOs and / or SPOs of large state-owned companies will make them more transparent and effective. Companies will receive money to implement profitable projects, the infrastructure of the stock market - incentive and money for development, the market -the product necessary for its existence, that is, shares. The investment opportunities of Kazakhstan population will expand" [4].
Entering companies into the public market is not just a source of attracting the necessary financial resources, but a transition to a qualitatively new level of the company's development.
Comparing the IPO with other forms of attracting capital, the following advantages can be distinguished:
1) attractiveness of perpetual capital, which does not need to be serviced;
2) improvement of financial condition of the company;
3) attractiveness of investments in the future on more favorable terms;
4) acquisition of status of a public company and increasing its prestige;
5) provision of liquidity of ownership of the company's owners;
6) obtain of information about the real market value of shares;
7) constant dynamics for compliance with international standards.
A partial loss of freedom, control and efficiency can be attributed to the company's risks from IPO. "Before and after the public offering of shares, the company is forced to detail all the main aspects of its activities, all changes, while carefully guarded and hidden information becomes available to an indefinitely wide range of users, including competitors" [5, 129-134].
Holding an IPO is a very difficult process, for which the company spends a lot of money, time and effort. Therefore, the IPO must be carefully prepared so that the risks are not realized and do not turn these advantages into drawbacks.
At present, Kazakhstan has a significant accumulation of domestic capital, which encourages diversification of their investments. Placement of foreign hard currency as bank deposits practically does not bring real income, since the majority of Kazakhstan banks accept deposits at a minimum annual interest rate of 1%. Deposits in national currency with a relatively high interest rate of11% are always at risk when expecting another wave of devaluation.
The purchase of shares of non-public companies outside the exchange commodity can be deceived opportunity for investors. In this connection, it became attractive for potential Kazakh investors to purchase shares in companies in the quasi-public sector of the economy.
The development of Kazakhstan issuers has come to a level where diversification of funding sources is required, as well as an increased role of equity financing, including through public offering of shares. At the same time, the management of companies is more focused on the placement of shares on the Kazakhstan stock market. This is due to the lack of recognition of companies in other states, as
well as certain concerns related to the insufficiently successful experience of placing common shares of certain Kazakhstani companies on the western sites.
An important stage in the development of the company is the transition from dependence on one or more strategic investors to the public market, which allows the company management to obtain a higher degree of independence in making managerial and financial decisions.
In Kazakhstan, the state that acted as the sole shareholder is now ready to share part of the state business in order to be able to solve social problems and at the same time provide conditions for domestic entrepreneurs to invest the accumulated capital and to withdraw considerable capital from the shadow side. In this regard, the public market is the best solution for this task, as it allows not only to obtain significant funds from the sale of shares, but also to place its shares among a wide range of investors and protect strategically important enterprises for the state from unwanted intrusion by individual players, not giving them the opportunity to concentrate in one hand a large stake in the company (the placed package, as a rule, is sprayed among many small holders, which reduces the risk of hostile capture).
In this regard, during the implementation of the "People's IPO" program, priority was given to the citizens of Kazakhstan and there were restrictions on the sale of shares to one investor. At the same time, it was assumed that no more than 25% of shares in the strategically important companies would be sold on the stock market.
The Republic of Kazakhstan is a country with the largest and most powerful economy in Central Asia. Its share in the total GDP of the region is 60%. Kazakhstan occupies the 35 th position out of 190 in the World Bank's rating "Ease of Doing Business" - the index of ease of doing business, and 1 in the rating on the indicator "Protection of minority investors". At present, the second wave of privatization of state-owned companies is taking place in Kazakhstan, and "National Welfare Fund" Samruk-KazynaJSC "as an
operator of a large volume of state assets takes an active part in this process. Privatization is declared as one of the tools of Kazakhstan's development.
After the sale of KazTransOil JSC and KEGOC JSC shares in the framework of the People's IPO program, within the framework of the Comprehensive Privatization Plan for 2016-2020, the state holding of Samruk-Kazyna JSC implements 200 state assets in a competitive environment. Six largest companies are planned to be put on an IPO: NAC Kazatom-prom JSC, Air Astana JSC, Kazakhtelecom JSC, Kazakhstan Temir Zholy JSC, NC KazMunaiGaz JSC, Kazpost JSC [3, 11-13].
The transfer of other small companies into a private environment will be carried out primarily through an electronic auction. If there are no similar companies on the market, or they are strategically important and socially significant, the company can be privatized partly - either in the stock market or through an auction / competition with the possible involvement of a strategic investor. At the same time, the controlling block of shares remains in the Fund group, and its size is determined by the degree of strategic and social importance of the company.
These measures taken by the Government of Kazakhstan will allow stimulating the development of healthy competition, reducing government regulation in the economy, developing the national capital market and financial institutions, increasing business activity and labor productivity, and improving the investment climate in the country.
A feature of the development of the IPO market in Kazakhstan is that the initiative belongs to the state and shares of state companies are listed on the stock market. There is an unpreparedness of many private companies to become public and to carry out in connection with this tremendous work. It should be noted that in Kazakhstan all the necessary conditions for conducting an IPO have been created. Kazakhstani legislation provided for the necessary instruments to protect the interests of both issuers and potential investors.
References:
1. Balakirev N., Davidenko L. "Procedure of the IPO in Russia" 2013. [ebook] Available at: URL: https://www.hse.ru/data/2013/08/22/1289794370/balakirev-davidenko.pdf [Accessed 29 Jul. 2018].
2. Akorda. kz [online] Available at: URL: http://www.akorda.kz/ru/speeches/internal_political_affairs/ in_speeches_and_addresses/vyst uplenie-prezidenta-kazahstana-nnazarbaeva-na-forume-po-zapusku-programmy-transformacii-ao-fond-nacionalnogo-blagosostoyaniya-samruk-kazy [Accessed 29Jul. 2018].
3. Samrul Kazyna, (2018). "Comprehensive Privatization Plan for 2016-2020" [ebook] Available at: URL: http://file:///E:/Libraries/Downloads/booklet_rus_06.06.2018.pdf [Accessed 30 Jul. 2018].
4. Vladimirskaya V., (2011). [ebook] "People's IPO - a professional and personal challenge". Available at: https://kase.kz/files/publications/2011/11_06_28_Megapolis.pdf [Accessed 31Jul. 2018].
5. Chimarov A.N. (2011). Influence of risks on efficiency of carrying out IPO. Russian Journal of Entre-preneurship. Available at: https://creativeconomy.ru/lib/6764 [P. 129-135] [Accessed 30 Jul. 2018].
