Shares in Exchange for Investments

In June, a major event occurred on the country’s financial market: Borisov Medical Preparations Plant, JSC conducted a First Initial Public Offering (IPO). It’s expected that other Belarusian companies will soon follow suit to attract capital

According to the Finance Ministry, IPO options were fixed in Belarusian legislation in 2007, finally finding fruition this June, when the first shares were being openly sold via the Exchange. Speaking of why Borisov’s Medical Preparations Plant, JSC has pioneered the move in Belarus, Belbiopharm Concern (overseeing the company) states: the Borisov plant is quite a large factory but smaller than BelAZ or Minsk Automobile Plant, for example, making it easier to conduct an IPO.
The Head of Belbiopharm’s Department for Legal and Analytical Work, Sergey Kazakevich, notes, “The present economic situation shows that it’s unrealistic to expect state pharmaceutical companies to develop without external investment.” He stresses that loans are currently expensive, with bank rates reaching 30 percent and more. “Our producers have reached a place where it’s no longer economically feasible to take out loans; attracting investments via privatisation and sale of shares is a reasonable and globally acknowledged approach,” he adds.
In all, 15 percent of the company’s shares were on sale — estimated at Br59.7bn (about $12m). It is planned that funds will be spent on financing a major investment project: the establishment of a new facility to produce tablet form drugs. “Additionally, an IPO promotes knowledge of a company and allows us to see how far the Belarusian pharmaceutical industry is interesting to investors,” comments Mr. Kazakevich.
Economist Georgy Grits believes the Belarusian pharmaceutical branch will attract foreign partners, being fast growing, with a large share of innovations. Moreover, Borisov Medical Preparations Plant, JSC is now among the top three leading suppliers of medicines to the Belarusian market, also exporting to Russia and other CIS states.

Tactics and strategy
Brostok has acted as an investment agent, organising the IPO. Its Director, Valery Postovsky, tells us that shares are being placed on Belarus’ Currency and Stock Exchange rather than a global venue — such as the London Stock Exchange — since it allows a shorter timescale and is less expense. He explains, “Firstly, we need to develop our own stock market, offering shares to our citizens and national investors. Secondly, taking assets to the London or Frankfurt exchanges would require a year or two, costing us several million dollars. This is reasonable if IPO covers large assets reaching hundreds of millions or even a billion dollars — such as would be true of Belarusian oil refineries. Borisov Medical Preparations Plant only requires a moderate sum of $12m, attracted in a short period of time, to finance an investment project already being realised.”
Borisov Medical Preparations Plant hopes that IPO will help solve tactical and strategic tasks. Its General Director, Alexander Fando, plans to attract a strategic investor; already, a large Chinese company is interested in becoming a buyer, alongside investors from the UK and Russia. Meanwhile, the Borisov plant views the IPO as a necessary intermediary stage to raise its market attractiveness. Besides attracting additional funds, the move promotes a positive image for the plant. “It’s not yet possible to assert that our Borisov plant is working under the same standards as Western public companies, but it is advancing, with certain success evident,” stresses Mr. Postovsky.
Mr. Fando points out that, being a joint stock company, Borisov Medical Preparations Plant was fully state owned before the IPO. However, when a company has 100 percent of its shares owned by the state, it strikes a warning note for investors, who are used to seeing joint stock companies with a share of private capital. This is another reason for the plant to join the IPO.
Economist Georgy Grits also believes that an IPO could help Borisov Medical Preparations Plant and other Belarusian factories attract strategic investors. “The fact that our enterprises are mastering a new instrument of financing is good. However, selling assets on an exchange — even to a large number of buyers — only attracts money and enhances a company’s image. A strategic investor will bring new technologies, knowledge and management efficiency, in addition to money. Belarusian enterprises need this now,” he emphasises.

Rehearsal before international debut
The Finance Ministry believes that the successful open sale of shares on the Belarusian Exchange will not only enhance the company’s attractiveness for strategic investors but, as the Securities Department says, will provide ‘a good rehearsal for entry to foreign IPO’. It adds that ‘judging by the activation of the exchange market on the whole, other Belarusian companies are expected to use IPO soon’.
Deputy Economy Minister Dmitry Golukhov notes, “We could enter the IPO path at a good professional level but the initiative should come not only from ‘above’ but from ‘below’ — from companies themselves. Taking into consideration the present state of Belarusian and international markets, I can say that these processes will continue developing over the coming year or two.” Speaking of Belarusian companies’ joining foreign exchanges, he notes that banks and international financial institutions offering experience and globally recognised names are expected to play an important role.
Co-operation between Deutsche Bank and the Belarusian Automobile Plant (BelAZ) is a good example of such interaction. The Belarusian plant produces dump trucks, bulldozers, traction evacuators and heavy duty dump trucks for metallurgical production, being among the top global concerns manufacturing quarry machinery. It oversees a third of the quarry trucks market and began preparation for IPO, aided by Deutsche Bank, in late 2010. The Industry Ministry hopes to see it ready within 12-18 months. It is planned that a minority package of shares shall be placed, through an additional emission. BelAZ’s debut IPO aims to attract foreign currency to further finance modernisation. Additionally, the Industry Ministry believes that the placement of shares of this major Belarusian company will help ‘position Belarus on foreign capital markets, while integrating its corporate sector into the global economy’.
It is supposed that BelAZ shares will be placed at Deutsche Borse, in Frankfurt am Maine. The Head of Deutsche Bank’s Russian Office, Joerg Bongartz, views BelAZ’s prospects positively and believes that other Belarusian companies could similarly attract finances on international exchanges. Deutsche Bank is ready to organise IPO and render consultations.
It is expected that, by late 2011, several Belarusian companies will have conducted IPO on the Belarusian Exchange, while the first foreign IPO is planned for early 2012.

By Vitaly Vladimirov