IPO in Russia at a rate of 21%: what to expect in the near future?
The Central Bank of Russia has once again raised the key rate to 21%, which significantly complicates the situation on the stock market. In the context of such a high rate, many investors prefer safe and liquid instruments, such as deposits, which negatively affects activity on the stock market. President Vladimir Putin has announced the need to double the capitalization of the stock market, but current conditions significantly complicate the implementation of this task. Let's consider how the rate increase affects the IPO, what expectations companies and investors have, and what can be expected in the near future.
The impact of a high rate on the IPO market
The increase in the key rate to 21% puts significant pressure on the stock market and limits the opportunities for companies planning to go public. Here are the main reasons why a high rate negatively affects IPOs:
Rising cost of borrowed capital. With a rate of 21%, the cost of borrowing for businesses becomes too high. Companies are forced to abandon debt financing or look for other sources of capital, which limits opportunities for growth and expansion.
Outflow of funds to deposits. The high rate makes deposits an attractive instrument for private investors. In conditions of instability, many prefer to place funds in banks where they can receive a guaranteed income. This leads to a decrease in activity on the stock market, as investors avoid the risks associated with purchasing shares at the IPO stage.
Problems with company valuation. In conditions of a high rate, the valuation of companies planning to go public becomes more difficult. Funds and investment banks require large discounts, which leads to lower valuations and, accordingly, to smaller amounts of capital raised. This creates additional pressure on companies, which are forced to either postpone the placement or agree to less favorable terms.
Company reaction to the rate increase
Many companies that planned to hold an IPO in the coming months prefer to "lay low" and wait for more favorable conditions. This is due to a number of factors:
Uncertainty in the market. In the context of high interest rates and general macroeconomic instability, companies prefer to hold off on their plans to go public to avoid finding themselves in a situation where raising capital becomes impossible or too expensive.
Reviewing strategies. Companies focused on public offerings are forced to review their strategies, adapting business models to new realities. This may include optimizing costs, reducing debt, and actively working to improve financial performance in order to remain attractive to investors even in difficult conditions.
Closed rounds of financing. Instead of an IPO, some companies may consider raising capital through closed rounds of financing, cooperation with venture funds or private investors. This allows them to avoid going public in an unfavorable market, but still retain the ability to raise funds.
Impact on the stock market and prospects for capitalization growth
President Vladimir Putin has announced the need to double the capitalization of the stock market, which requires a significant increase in stock market activity and an increase in the number of IPOs. However, in the current conditions, this appears to be an extremely difficult task.
Reduced liquidity. In a high rate environment, many investors try to avoid stocks, which leads to a decrease in liquidity in the market. This, in turn, makes it difficult to conduct successful IPOs and leads to a decrease in the value of shares of even large companies. Increasing market capitalization in such conditions will require significant incentives, such as tax breaks for IPO participants or measures to reduce the cost of borrowing.
Investor reassessment of risks. A high key rate forces investors to more carefully assess the risks associated with buying shares. This leads to the fact that companies are forced to offer significant discounts when placing in order to attract interest. However, such conditions may reduce the number of companies ready to go public.
Potential government support measures. To stimulate the market, the government may consider various support measures, such as interest rate subsidies, tax breaks for companies going public, or preferential financing programs for issuers. However, at the moment, no specific measures have been adopted, which adds to the uncertainty.
What to expect in the near future?
In the coming months, we can expect continued difficulties with conducting an IPO in Russia. The high key rate will restrain activity in the stock market and reduce the opportunities for raising capital. However, there are several scenarios that may develop depending on the further dynamics of the economic situation:
Rate reduction in case of economic stabilization. If inflation begins to slow down and the economic situation stabilizes, the Central Bank may begin to lower the rate. This may give impetus to the IPO market and increase liquidity in the stock market.
Activation of companies when rates are lowered. In the event of a rate reduction, companies that have postponed their IPO may quickly become active in order to take advantage of the improved conditions. This will lead to a surge in market activity and, possibly, to an increase in capitalization.
Strengthening of the ruble as an additional factor. If the ruble strengthens, it may create more favorable conditions for attracting foreign investors, which will also contribute to the activation of the IPO market.
The increase in the key rate to 21% creates serious obstacles to IPOs in Russia, making it difficult to raise capital and reducing activity in the stock market. Companies are forced to postpone plans to enter the stock exchange, adapting their strategies to the new conditions, and look for alternative methods of financing. In the near future, the main focus will be on stabilizing the economy and possible support measures that can help overcome the current difficulties.
However, despite the difficult conditions, the Russian stock market retains the potential for growth, and with an improvement in the macroeconomic situation, we can expect a recovery in activity and the resumption of IPOs.
Despite the current economic difficulties, we at Open Oil Market believe in the potential of the Russian stock market and confidently continue to move forward. The increase in the rate to 21% creates additional challenges, but we are using this time to strengthen our positions, optimize business processes and implement new solutions that will be useful to our partners and clients. For us, the pre-IPO round is not just an opportunity to raise capital, but also a step towards greater development. We are ready for public placement and are confident that thanks to our professionalism and flexibility, we will be able to successfully overcome any difficulties and reach new heights.
I wish success to all companies that are currently struggling for growth and development in difficult conditions.
