Russian assets cheap, attracting investor interest- Stock exchange chief

Alexander Afanasyev. Source: Getty Images/Fotobank

Alexander Afanasyev. Source: Getty Images/Fotobank

Alexander Afanasyev, Chief Executive of the Moscow Stock Exchange talks to RIR about the influence recent events have had on the Russian securities market and the opportunities open to international investors in these new conditions.

How has the number of foreign players on the Moscow stock exchange changed due to the currently difficult political situation?

You'd be surprised but we are not seeing a decrease in the share that international investors make up in the amount of trading. In fact, the opposite is true. If at the end of 2013, foreigners accounted for 40 percent of the Russian stock market, now the figure is 46 percent; for derivatives, the rise has been from 38 to 44 percent; on the foreign exchange market, from 10 to 14 percent.

Indeed, some of those who are considered foreigners in our records are registered in Cyprus and many fortunes in Russia are invested through offshore accounts in Cyprus. That is to say that, potentially, their activity could be considered to be a rise in domestic demand.

However, far from all Cyprus accounts are Russian in origin, their managers are not always Russian nationals and their choice of geography for their investment is very wide. At the moment, Russian assets are very cheap and this cannot but generate an interest among investors. 

In 2014, some major issuers that traded on foreign platforms have decided to list on the Moscow exchange, for instance Yandex. What other companies would you give as an example? What has been done to attract them to the Russian market?

We have an extensive program for attracting new issuers. There are four groups of companies that we are interested in. First of all, these are private Russian companies that seek to raise funds through a share or a bond placement on the stock exchange.

Secondly, these are privatized state companies. For instance, in late 2013, the Moscow stock exchange was the platform for a $1.3-billion placement as part of the privatization of a major world producer of diamonds, Alrosa.

Thirdly, these are companies that are located under foreign jurisdiction but are in fact Russian. It is this category that Russia’s major internet company, Yandex, belongs to, together with a successful retailer, Lenta, the Polymetal mining company, and the electronic payment operator QIWI. These companies choose the Moscow exchange because they are interested in Russian investors and in the opportunity of being listed in country stock indices.

Finally, we are interested in high-tech venture companies, for whom the Moscow stock exchange has set up a dedicated division, Innovation and Investment Market.

Does it, in effect, mean that Russia is trying to set up its equivalent of NASDAQ?

We cannot include small venture companies in high quotation lists, but there is a class of investors that are interested in this type of companies. This market is so far rather small, it is, of course, no NASDAQ yet, but we have managed to create a certain association of venture funds, brokers, investment funds that are interested in this market.

Over the past 18 months, the Moscow stock exchange has conducted its own IPO and SPO. Now over 50 percent of your shares are in public float. What effect is such a high free float having on the work of the stock exchange?

We conducted our IPO not because of a shortage of capital but because we wanted to use our own example to show that there is an investment demand for shares in companies with good business. Indeed, for a Russian company the Moscow stock exchange has a very high free float, over 50 percent. We do not have a single large shareholder with a controlling stake and we have a very broad shareholder base.

A public offering changes a company’s life altogether: It implies different corporate governance requirements, a different level of transparency and reporting, and new motivation mechanisms for management and staff.

This year, former Finance Minister Alexei Kudrin was elected chairman of the supervisory board of the Moscow stock exchange. What innovations do you think the ex-minister will introduce to its operations?

When Alexei Kudrin joined the Moscow stock exchange, he brought with him outstanding expertise in terms of his experience, his macroeconomic and financial knowledge. There was no need to teach him the technical intricacies of the exchange operation: It turned out he was well familiar with them.

It goes without saying that Mr. Kudrin has extensive connections, which may be very useful for developing our business. It is very important to us that he is the most respected independent expert in Russia.

Interestingly, when we were holding our conference in London in October and we announced that Kudrin was expected to attend, in a matter of three days there were so many people who registered for the event that there was simply no room to accommodate them all.

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