Vyugin limits

IPO organizers will not be able to buy more than 20% of the company's shares

Next year, the Federal Service for Financial Markets (FFMS) intends to limit the influence of placement organizers on setting the price of securities. It is assumed that underwriters will be able to purchase no more than 20% of shares at their own expense. The head of the Federal Financial Markets Service Oleg Vyugin announced this yesterday. This decision, he said, is aimed at preventing attempts to manipulate the prices of placed securities. Market participants believe that this restriction is not significant for an IPO, since the organizers usually do not make any large purchases of the shares being placed.

Mr. Vyugin first announced his intention to limit the capabilities of underwriters last week at a meeting with journalists. “I believe that the underwriter should not be included in the order book,” the head of the Federal Financial Markets Service said then. According to him, now the underwriter has the right to participate in the order book, and in this regard, the placement price for an IPO may not be set by the market, but actually by the underwriter himself. In essence, this is an opportunity for price manipulation, so it is necessary to limit the participation of the placement organizer in the order book. It is expected that the service will issue a special regulation regulating the participation of the underwriter in the order book.

As Denis Kuznetsov, vice president of Aton Investment Group, told Vremya Novostey, “not all investment banks have real money with which they could buy out most of the shares placed during the IPO.” Theoretically, he believes, the organizer could borrow these funds, but, as a rule, “we are talking about hundreds of millions of dollars, and it is unlikely that an investment bank will want to take out such a loan.” In addition, Mr. Kuznetsov asserts, “the task of any organizer is to attract as many market investors as possible who want to buy shares, and not risk their funds.” At the same time, in his opinion, there may be cases in the debt market when the organizers of bond issues buy out a significant part of the issue for themselves.

Avanes Oganesyan, vice-president of Renaissance Capital Investment Company, shares a similar opinion: “When conducting an IPO, it is very rare that the organizers buy back shares for themselves. But if the Federal Financial Markets Service has reason to believe that underwriters are trying to manipulate share prices, then I think this measure is justified. Another thing is that organizers can find technical tricks to get around this restriction. For example, to encourage the issuer to buy part of the issue using borrowed funds.” Mr. Oganesyan also believes that this restriction would be more effective for the bond market. “Just a few years ago, there were a lot of loan placements, and most of them were bought by the organizers.” Similar operations occur now, but it is impossible to determine their market share. “This has nothing to do with price manipulation,” says Troika Dialog analyst Alexander Kudrin. -- The point is that the underwriter has an obligation to the issuer to place the entire issue. And if he fails to do this, then he buys back part of the bonds for himself.”

Natalia ROMANOVA