Conservatism not in fashion

Enterprises advised to search for cheap finances on foreign capital markets

By Alexander Borovikov

Until recently, such instruments as corporate bonds and initial public offerings (IPO) were of no great interest to Belarusian enterprises. However, international experience shows that these can be more beneficial than bank loans in the structure of external financing sources.

Until now, conservative domestic industrialists had no need to search for capital on foreign markets, since bank loans were enough to satisfy their needs. However, times are changing, with enterprises responding to the state’s appeal to find alternative mechanisms of long-term financing.

The Economy Ministry is prioritising the creation of conditions to help businesses develop, explains Dmitry Golukhov, Belarus’ Deputy Economy Minister. “The initiative should come primarily from enterprises themselves, rather than being given from above,” he asserts. “There are no ready-made decisions in this sphere; we need to study external and domestic markets before taking corresponding decisions.”

IPOs allow investors to become shareholders in a company but involve a complex range of organisational, legal and financial procedures, with many intermediaries, beside the enterprise itself and potential investors. The Belarusian Summit of Capital Markets, recently hosted by Minsk, demonstrated that Belarusian enterprises wishing to try the IPO route can count on assistance. For example, Deutsche Bank promises to more actively collaborate with domestic financial structures and enterprises. It would help Belarusian companies to take their first steps on the international capital market. In particular, a working group including German bankers is discussing this opportunity with BelAZ; the industrial giant could soon place shares on the international market. “BelAZ is only in the first stage of such work so it’s too early to speak of pricing parameters. It could take over a year to prepare,” explains Joerg Bongartz, the Chairman of Deutsche Bank’s Board of Directors.

Nobody is saying that it will be easy for Belarusian enterprises to gain prominence on foreign capital markets, as shown by the experience of our closest neighbours. For example, in 2010, of twenty Ukrainian enterprises wishing to attract international capital, only four entered the global IPO market. The volume of initial placement of Ukrainian companies totalled just $335m — almost five times less than their planned $1.5bn. According to specialists, the Ukrainian failure was the result of the debt crisis, which began in Eurozone countries in the second quarter of the previous year. 2011 should be more successful for those wishing to borrow money from international financial institutes.

Mr. Golukhov notes that the entrance of Belarusian enterprises onto the international capital market should be fulfilled as part of a single strategy. Of course, it’s unlikely that Belarus will achieve its aim at a single stroke. The Deputy Economy Minister believes that the process of IPO share placement is unique to each enterprise and relies on long-term preparations.

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