IPO in Simple Terms: A Comprehensive Guide for Newcomers to Initial Public Offerings in Russia
IPO (Initial Public Offering) is the initial public offering of a company's shares on the stock exchange, when a private company becomes public and any investor can buy its shares [web:2][web:6][web:9]. In Russia, this process is regulated by the Central Bank and occurs primarily on the Moscow Exchange, where over 80 placements with a total volume exceeding 2 trillion rubles have been conducted in the last five years [web:19][web:20][web:21].
What is an IPO and Why is it Necessary?
Fundamentals of Initial Public Offerings
Imagine a successful private company that has developed over the years through its own resources and private investments [web:2][web:9]. A moment arrives when significant capital investments are necessary for further growth—building new factories, entering international markets, and developing innovative products. In this situation, the company may decide to go public through the IPO process [web:6].
The initial public offering is a complex financial mechanism where a company first offers its shares to a wide range of investors through the stock exchange [web:2][web:9]. Before the IPO, the company’s shares belong to a limited group of people—founders, top managers, venture funds, and private investors—who cannot freely sell their shares [web:6]. After a successful placement, these shares begin to trade on the exchange, gaining liquidity and market value.
The IPO process fundamentally changes the nature of a company. If previously all strategic decisions were made by a narrow circle of owners, after the placement, the company becomes accountable to thousands of shareholders [web:24]. This requires the implementation of transparent corporate governance procedures, regular publication of financial reports, and compliance with multiple regulatory requirements.
Reasons for Companies to Conduct an IPO
The primary driver for going public is typically the need for capital [web:11][web:13]. Russian technology companies often utilize IPOs to finance expansion into regions or to develop new products. For instance, in 2021, IT companies raised over 150 billion rubles through placements, allowing them to significantly accelerate their development [web:1].
Enhancing brand recognition serves as an important byproduct of the IPO [web:24]. The public status of a company automatically increases trust from clients, suppliers, and partners. Many government and large corporate contracts are only available to public companies with transparent reporting.
Existing shareholders gain the opportunity to partially or fully sell their stakes, which is particularly relevant for venture funds and private investors who invested in the company at early stages [web:24]. This creates an exit mechanism for initial investors and motivates new investments in startups.
Transformation of Corporate Culture
Post-IPO, a company must adhere to strict corporate governance standards [web:19][web:21]. This includes establishing a board of directors with independent directors, implementing internal control and risk management systems, and regularly publishing detailed financial and operational information. For many Russian companies, this represents a significant challenge requiring a fundamental restructuring of internal processes.
The IPO Process in Russia
Preparation Phase: Laying the Foundation
Preparing for an IPO begins long before the actual placement and may take anywhere from 12 to 18 months [web:11][web:13]. The company needs to undergo a comprehensive reorganization of its corporate structure, often including the merger of subsidiaries, asset ownership optimization, and elimination of related-party transactions. This process requires considerable investment of time and resources, as any complexities in the ownership structure can pose obstacles to successful placement.
The company’s financial statements must comply with International Financial Reporting Standards (IFRS) or Russian standards for the last three years [web:21]. This often reveals significant differences in asset valuation, revenue recognition, and profit calculations compared to Russian standards. Many companies find that their actual profitability differs dramatically from figures in Russian reporting.
Choosing an underwriter is one of the critical decisions at this stage [web:11][web:13]. Leading Russian investment banks, such as VTB Capital, Sberbank CIB, and Renaissance Capital, possess varying expertise across different sectors. The cost of the underwriter's services usually ranges from 3% to 7% of the funds raised, which can reach hundreds of millions of rubles for large placements.
Regulatory Marathon
Obtaining approval from the Bank of Russia is a multi-stage process which became stricter in 2025 [web:19][web:20]. The Central Bank of Russia has tightened requirements for issuers, requiring them to provide independent analytical reports on the fair value of shares. This innovation aims to protect investors from inflated valuations but increases costs and preparation times.
The prospectus—often exceeding 200 pages—must contain comprehensive information about the company's operations [web:19]. The regulator closely examines every aspect of the business, from growth strategy to the risk management system. The document review process can take several months, especially if the regulator requests additional clarifications.
The listing requirements of the Moscow Exchange include minimum capitalization size, the presence of independent directors on the board, and compliance with corporate governance standards [web:21]. To qualify for the first tier, a minimum capitalization of at least 60 billion rubles is required, which is accessible only to the largest companies.
Pricing and Marketing
The book-building process involves balancing between maximizing funds raised and ensuring a successful trading debut [web:11]. Underwriters conduct a series of presentations for institutional investors, collecting preliminary bids and forming an understanding of demand. The price range is typically set with a 15-25% spread, allowing flexibility in final pricing.
Roadshows—marketing presentations of the company—may include meetings in dozens of cities with hundreds of potential investors [web:11]. Given limited access to international markets, Russian companies have focused on domestic investors, requiring special approaches to presenting the company’s story and prospects.
How Individual Investors Can Participate in an IPO
Choosing the Right Broker
The accessibility of IPO participation for retail investors has radically changed over recent years [web:4][web:11]. What was once a privilege of large institutional investors is now open to practically anyone with a brokerage account who can apply for participation in a placement. However, the quality of service and participation conditions vary significantly between brokers.
Leading brokers such as Sberbank, Tinkoff, and VTB typically secure the largest allocations for retail clients and offer convenient mobile applications for submitting applications [web:11]. Participation fees for IPOs range from 0% to 1%, and many brokers provide favorable conditions for active clients or premium account holders.
The minimum amount for participating in an IPO usually ranges from 10,000 to 100,000 rubles, making this instrument accessible to a wide range of investors [web:11]. Some placements set a minimum lot of several shares, allowing participation even with small amounts.
Application Strategies
Understanding the allocation mechanism is critical for maximizing the chances of receiving shares [web:11][web:22]. Most IPOs provide a separate tranche for retail investors, constituting 10-30% of the total placement volume. If demand exceeds supply, applications are reduced proportionally.
Experienced investors employ various tactics to increase the likelihood of receiving shares. Submitting bids at the maximum price of the range raises priority in allocation but may lead to overpayment. Splitting a large application into several smaller ones through different family members can increase overall allocation, though it requires opening additional accounts.
The timing of application submission also matters [web:4]. Applications submitted in the early days of the subscription period often receive priority in allocation. However, the final issue price is determined only on the last day, creating an element of uncertainty.
Allocation Process and First Days of Trading
Following the closure of the book-building process and determination of the final price, the allocation process begins, which may take several days [web:11]. Investors receive notifications regarding the number of shares allocated to them, and unallocated funds are returned to their accounts. Shares are typically credited 1-2 days before the commencement of trading on the secondary market.
The first days of trading are often characterized by high volatility [web:29]. Many investors seek to quickly lock in profits, which can result in significant price fluctuations. Statistics show that about 60% of Russian IPOs trade above their issue price on the first day, but only 40% maintain positive dynamics a year later [web:29].
The Art of Analyzing IPOs
Diving Deep into the Prospectus
The prospectus is the most comprehensive source of information about the company available to investors [web:11][web:19]. However, its volume and complexity often deter private investors. Effective analysis requires focusing on key sections that reveal the true state of the business.
The section on risk factors warrants particular attention, as companies are required to disclose all significant threats to their business [web:19]. Here, one can find information about dependence on key customers, regulatory risks, currency exposures, and other factors that may impact future results. Companies often try to downplay the significance of risks, making critical analysis of this section essential.
The use of raised funds indicates the true intentions of management [web:19]. If a significant portion of the funds is directed toward debt repayment or payments to existing shareholders, it may signal financial difficulties. The most attractive IPOs are typically those where funds are directed toward business development and capital expenditures.
Comparative Analysis and Industry Multiples
Evaluating the fair value of an IPO requires comparison with publicly traded comparable companies [web:24]. The Russian market has its peculiarities in pricing, impacted by discounts to emerging markets and geopolitical factors. The P/E multiple for Russian companies is traditionally 20-30% lower than similar figures in developed markets.
Trends in financial indicators over the past 3-5 years reveal the stability of the business model [web:24]. Special attention should be given to the quality of revenue growth—whether it is increasing through price increases, expanding the customer base, or entering new markets. Companies with organic growth typically show more stable results post-IPO.
An analysis of the company's competitive position includes assessing market share, barriers to industry entry, and the sustainability of competitive advantages [web:24]. Russian companies often have strong positions in the domestic market but may face challenges in international expansion due to current geopolitical conditions.
Risks of Investing in IPOs
Systemic Risks of the Russian Market
Investing in Russian IPOs carries specific risks associated with the peculiarities of the national economy and geopolitical situation [web:1][web:29]. International sanctions have significantly restricted Russian companies' access to global capital markets, increasing dependence on domestic funding sources. This could lead to asset overvaluation and distort the market's pricing mechanisms.
Currency risks are particularly relevant for companies with a high share of export revenues or import costs [web:29]. Fluctuations in the ruble exchange rate can significantly affect financial results, especially in conditions of limited access to currency hedging. Investors must carefully analyze the currency structure of the company's income and expenses.
Regulatory changes in Russia occur quite frequently and can radically alter business conditions [web:19][web:22]. This is particularly relevant for sectors with a high level of government regulation—banking, telecommunications, energy. New requirements may necessitate significant capital investments or limit growth opportunities.
Specific IPO Risks
Information asymmetry between existing shareholders and new investors creates additional risks [web:24]. Management and large shareholders have more complete information about the company's prospects, which may lead to adverse selection—going public at times of business overvaluation.
The lack of trading history makes assessing volatility and correlations with the market a challenging task [web:29]. The first months of trading are often characterized by heightened uncertainty and sharp price movements. About 70% of Russian IPOs exhibit higher volatility than the market average in their first year of trading.
Liquidity of shares post-IPO may turn out to be lower than expected, particularly for mid-cap companies [web:29]. This complicates the sale of large share blocks without significantly impacting the price. Investors should consider this factor when planning their investment strategy.
Taxation of Income from IPOs
Material Benefit: A Hidden Tax
The concept of material benefit when participating in an IPO remains one of the most complex aspects of investment taxation [web:25][web:27][web:30]. When the placement price is set below the fair market value, the investor automatically incurs income in the form of a material benefit, which is subject to personal income tax (PIT) at a rate of 13% for residents and 30% for non-residents.
Determining fair market value for tax purposes presents a significant challenge [web:30]. In the absence of objective price benchmarks before the commencement of trading on the secondary market, valuation methods are often utilized. Tax authorities may use various approaches, including analysis of comparable companies and discounted cash flow methods.
The practical implementation of this mechanism creates a scenario of double taxation [web:30][web:31]. The investor pays tax on the material benefit upon receiving shares and then again on income from their sale. The Central Bank of Russia has recognized this issue and is working on solutions, but changes may not come into effect until 2026.
Tax Planning and Optimization
Utilizing an individual investment account can significantly reduce tax burdens [web:27][web:35]. Type A IIA allows for a deduction on the amount deposited into the account for participation in the IPO, effectively lowering the cost of investments. Type B IIA exempts from income tax if the three-year ownership period is met.
Long-term ownership of shares provides tax benefits when sold [web:27][web:35]. Investors who hold shares for more than three years may benefit from long-term ownership perks, which can significantly lower or entirely eliminate capital gains tax.
Offsetting losses from the sale of other securities can compensate for income from IPOs [web:27]. This requires detailed tracking of all securities transactions and may necessitate the services of a tax advisor for optimal planning.
Current Trends in the IPO Market in Russia 2025
Industry Structure and New Leaders
The Russian IPO market in 2025 showcases substantial transformation in industry structure [web:1][web:5]. While previously dominated by resource and financial companies, technology startups, logistics operators, and consumer goods manufacturers are now taking an active position. This diversification reflects the overall trends of the Russian economy amidst import substitution.
Information technology has become the driving force of the IPO market, attracting the most investor interest [web:1]. Companies in fintech, e-commerce, and digital services demonstrate high growth rates and attractive margins. However, their valuations often seem inflated by traditional metrics, necessitating close scrutiny of business models and monetization prospects.
Green energy and ESG initiatives are gradually gaining traction, although they remain a niche segment [web:28]. Growing focus on sustainability and corporate responsibility creates new opportunities for companies capable of demonstrating compliance with ESG criteria. The Central Bank of Russia has launched an experiment to assign ESG ratings to issuers, which could become a significant pricing factor.
Impact of New Regulatory Initiatives
The Central Bank of Russia continues to refine the regulation of the IPO market, striving to enhance the quality of placements and protect investor interests [web:19][web:20]. The mandatory provision of independent analytical reports on fair share valuations has represented a significant innovation that has increased issuer costs but improved pricing transparency.
Digitalization of IPO procedures promises to significantly reduce placement timelines and costs [web:28]. Pilot projects involving electronic document circulation and automated compliance checks for listing requirements are already yielding positive results. This is particularly important for medium-sized companies, for whom traditional IPO costs were disproportionately high.
The development of the retail segment remains a regulator priority [web:22]. Reducing minimum amounts for participation in IPOs and simplifying application processes are aimed at attracting more private investors. This should increase market depth and reduce dependence on institutional investors.
Practical Recommendations for Beginners
Building an Investment Strategy
Successful investing in IPOs requires a clear strategy and discipline [web:24]. Beginners should start with small amounts and gradually increase their exposure as they gain experience. Diversification remains a key principle—participation in IPOs should not constitute more than 5-10% of the overall investment portfolio.
A long-term approach typically yields better results than attempts to quickly profit from the volatility of the first trading days [web:24]. Statistics reveal that investors holding IPO shares for more than a year achieve higher returns than those who sell in the first weeks. This necessitates patience and willingness to endure periods of negative returns.
Regular monitoring of financial results and operational metrics helps make informed decisions on continuing to hold shares [web:24]. Many successful IPOs later encounter operational challenges that may substantially affect share prices.
Tools and Resources for Analysis
Effective analysis of IPOs requires utilizing multiple information sources [web:1][web:4]. Official issuer documents should be supplemented with independent analytical reports, industry reviews, and expert opinions. Many brokers provide their clients with analytical materials on upcoming placements.
Specialized financial platforms and mobile applications simplify tracking the IPO calendar and submitting applications [web:4]. Automatic notifications of new placements and changes in conditions help ensure that attractive opportunities are not missed. However, these technological solutions do not replace fundamental analysis and an understanding of business specifics.
Participation in investment communities and forums can provide additional insights and diverse perspectives [web:4]. However, it is essential to critically assess the information received and not base investment decisions solely on the opinions of other market participants.
Additional Tools for a Successful IPO Investor
Modern technologies provide IPO investors with access to advanced analytical tools [web:4]. Screening systems allow filtering upcoming placements by industry, size, financial metrics, and other criteria. Machine learning algorithms help identify patterns in the success of IPOs based on historical data.
Corporate event calendars enable tracking important dates post-IPO—publication of initial reports, expiration of lock-up periods, conducting additional placements [web:1]. This information is crucial for planning entry and exit from positions. Many professional platforms integrate this data with trading terminals for automated execution of strategies.
Psychological Aspects of IPO Investing
Emotional control plays a decisive role in successful IPO investing [web:24]. The excitement surrounding "hot" placements often leads to irrational decisions and overpayment. Experienced investors use predetermined selection criteria and do not deviate from them under the influence of market sentiment.
The fear of missing out (FOMO) is particularly prevalent in IPO investing, as each placement is unique and will not recur [web:29]. However, statistics show that patient investors who skip overvalued IPOs achieve better long-term results than those who participate in all available placements.
The Russian IPO market offers unique opportunities for investors who are prepared for careful analysis and long-term investments [web:1][web:24][web:29]. Understanding specific risks and regulatory nuances, combined with a disciplined approach to investment selection, can provide attractive returns in the long term. The key is to remember that IPOs are high-risk instruments that require an appropriate place in a diversified portfolio.
