The procedure for Initial Public Offerings (IPOs) varies across different countries, with the United States and Russia being no exceptions. Companies planning to go public must take into account differences in legislation, disclosure requirements, regulatory frameworks, and market conditions. In this article, I, Sergey Tereshkin, founder of Open Oil Market, will discuss the key differences between American and Russian IPOs, as well as the unique features and risks associated with each. This will help potential investors and companies better understand the nuances of entering the capital markets in these two countries.
1. Market Regulation and Oversight
One of the most significant differences between American and Russian IPOs relates to the regulation of the securities market.
American IPO:
- In the U.S., the regulation of the securities market is enforced by the Securities and Exchange Commission (SEC). The SEC imposes strict disclosure requirements, financial reporting scrutiny, and corporate governance standards.
- Companies going public on U.S. exchanges (such as NASDAQ or NYSE) must provide detailed prospectuses that include a company history, business model, risks, financial results, and future plans.
- The SEC also actively monitors compliance with the law post-IPO, enhancing transparency and safeguarding investor interests.
Russian IPO:
- In Russia, the regulation of the securities market is overseen by the Central Bank of Russia. The disclosure requirements are less stringent compared to American standards.
- Companies going public on the Moscow Exchange are also required to provide prospectuses, but the volume of disclosed information may be lesser.
- After the IPO, Russian companies experience less stringent oversight from regulators, which can affect the level of transparency and the availability of information for investors.
2. Accounting Standards and Financial Reporting
The accounting standards and financial reporting requirements used in preparing for an IPO also differ significantly.
American IPO:
- In the U.S., companies are required to prepare their financial statements according to GAAP (Generally Accepted Accounting Principles) or International Financial Reporting Standards (IFRS) if they have an international audience.
- Companies must undergo audits by independent auditing firms accredited by the SEC, ensuring a high level of reliability of financial information.
- The disclosure must be as comprehensive as possible, including detailed reports on income, expenses, cash flow, and equity changes.
Russian IPO:
- In Russia, financial statements are most often prepared according to Russian accounting standards (RAS), which may differ from international standards.
- To attract international investors, companies are encouraged to prepare their statements according to IFRS; however, this is not a mandatory requirement.
- Financial statement audits are also required, but the accreditation requirements for auditing firms may be less stringent than in the U.S.
3. Disclosure Requirements
Disclosure requirements prior to an IPO are critical as they ensure the transparency of a company and enable investors to make informed decisions.
American IPO:
- In the U.S., companies must provide detailed information on the risks associated with their operations, including competitive threats, legal risks, internal factors, and macroeconomic conditions.
- Transparency of financial results and future plans is one of the key requirements. Companies are obligated to disclose all potential financial and operational risks to protect investor interests.
- Companies must also adhere to the principle of "material information," meaning consistent and full disclosure of significant events and factors affecting the company’s performance.
Russian IPO:
- In Russia, disclosure requirements may be less stringent, allowing for a more flexible approach to data provision.
- Russian companies do not always disclose all financial and operational risks thoroughly, which may impact investor awareness.
- The level of detail in information included in the prospectus may be lower than in an American IPO, especially for companies targeting the domestic market.
4. Liquidity and Market Conditions
The liquidity of shares and market conditions also differ between the U.S. and Russia, affecting the valuation of companies and capital-raising opportunities.
American IPO:
- U.S. stock exchanges, such as NASDAQ and NYSE, provide high liquidity, enabling companies to attract significant capital.
- High liquidity also facilitates more stable stock pricing, which is important for investors.
- The U.S. market attracts international investors, allowing companies to broaden their shareholder base and access global capital.
Russian IPO:
- Liquidity on the Moscow Exchange is significantly lower than on American exchanges, which may limit capital-raising opportunities.
- The volatility of the Russian market is often higher, leading to significant fluctuations in stock prices after an IPO.
- A limited number of foreign investors reduces opportunities to attract international capital and increases dependence on the domestic market.
5. IPO Costs
The costs associated with conducting an IPO can vary significantly based on the country and the requirements imposed on companies.
American IPO:
- In the U.S., the costs associated with conducting an IPO are higher due to stringent disclosure, audit, and legal requirements.
- Companies must pay for the services of underwriters, consultants, auditing firms, and legal advisors, making the IPO a costly procedure.
- Despite the high costs, companies can expect to attract large amounts of capital due to high liquidity and interest from international investors.
Russian IPO:
- In Russia, costs are generally lower due to more flexible disclosure and audit requirements.
- Companies may require less time and resources to prepare for a public offering, which reduces the financial burden.
- However, opportunities for capital raising may be limited compared to the U.S. due to lower market liquidity.
6. Corporate Governance and Investor Protection
Investor protection and corporate governance standards also differ between the U.S. and Russia.
American IPO:
- In the U.S., companies are required to adhere to strict corporate governance standards, including the independence of board members and the establishment of audit and compensation committees.
- Investors are protected by legislation that regulates companies' activities and their accountability to shareholders.
- Any changes to corporate structure or significant transactions require shareholder approval, enhancing the protection of their rights.
Russian IPO:
- Corporate governance standards in Russia are less stringent, and companies may be more closed off in governance issues.
- The level of protection for minority shareholders may be lower than in the U.S., increasing risks for investors.
- Corporate governance and disclosure matters can be addressed at the company level rather than being strictly regulated by the state.
The American market offers higher liquidity, strict transparency requirements, and investor protection, while a Russian IPO may be more accessible in terms of costs but less predictable. The choice between an American and a Russian IPO should be based on the company's strategic objectives, market conditions, and investor preferences.
