An IPO boom is underway in Russia. If in 2022 there was only one placement of the Whoosh company for RUB2.1bn, last year there were already eight IPOs collectively worth RUB45bn. And this year the number of IPOs will double again, according to local investment bank forecasts.

As bne IntelliNews reported, Russia’s stock market has come back to life fuelled by domestic investment. Russia’s leading MOEX index regained its pre-war level after crossing 3,500 on May 18. (chart)

“As of the end of April, the MOEX Russia Index gained 4.1%, hitting a new record high over the past two years,” the Central Bank of Russia (CBR) said in an update.

The authorities are keen to see the domestic market develop to provide another source of investment capital. Russian President Vladimir Putin said in a speech earlier this year that as part of his revised National Projects 2.1 he wanted to see the capitalisation of the equity market double in the coming years.

And with the economy running hot, many companies are reporting record profits and have resumed paying dividends.

As reported by bne IntelliNews, Russia’s domestic stock market was booming just before the Ukraine invasion as Russian retail investors piled into equities in the autumn of 2020 as they looked for better returns than they were earning from the traditional store of wealth: bank deposits.

Banks and brokers are now actively promoting equity investments and retail investors are predominately making investments via smartphone apps.

To attract clients to investments in the stock market they have launched a number of schemes and promotions. For example, Russia’s biggest bank and one of the most popular stocks on the market, Sber gives from three to 100 bonus shares to any customer that opens a “Best Percent” deposit account with a rate of up to 18% per annum and a brokerage account with Sberbank investment services.

Russia's economy surprised everyone by growing 3.6% last year, despite the extreme sanctions regime, and is on course to turn in a similar result this year. Fresh inflows of capital and strong growth have sparked an IPO boom as companies look to raise more money to expand. The preference for using equity to raise money is also helped by the high interest rates on bank loans. Thanks to high inflation, the Central Bank of Russia (CBR) hiked the prime rate to 16% and is expected to hike it again to 17%, making bank loans an expensive source of capital.

Companies from a variety of industries are launching IPO plans: information technology, fintech, gas stations, light industry and retail, which will allow investors to diversify away from the traditional oil, gas and banks that have been the mainstay of Russian portfolio investing for years.

What is new is that it is not the industry leaders and blue chips that are offering their shares for sale, but, as a rule, companies with high business development dynamics, who want to increase their market share. The growth of profits and the potential for more growth is what is making these companies interesting to investors.

“According to the Moscow Exchange, this year there will be about 20 IPOs – both primary and secondary, when investors are offered additional blocks of shares,” the head of the Sber broker, Aisha Kubezova, told Vedomosti. “We hope that the number of placements will grow, as will their volumes. Given the current market conditions, this is a win-win situation for all parties – on the one hand, investors receive new investment opportunities, which they are so in demand against the backdrop of problems with access to foreign markets, and companies have the opportunity to profitably locate at attractive levels and long-term money for business development.”

The peculiarity of the current placements, as well as the entire Russian stock market after February 2022, is the dominant role of retail investors, said Stanislav Sukhov, senior project leader at Frank RG. Institutional investors are not showing the same activity: demand from them is small, according to Sukhov.

Nevertheless, despite the sharp pick-up in listing activity, the overall volume of IPO in market capitalisation terms remains low and the free floats thin. Often the free float is not more than 5%, according to Sukhov.

Eight listing have taken place this year: the alcohol group Kristall, the vendor Diasoft, Carsharing Russia (Delimobil), the leasing company Evroplan, the microfinance organisation Zaimer, MTS Bank, the microelectronics manufacturer Element, and the developer of the videoconferencing service IVA.

However, the value of the IPOs has been increasing steadily as more companies come to market; the larger IPOs included Evroplan which raised RUB13.1bn ($152mn), and MTS Bank with RUB11.5bn. Both stocks have been stable since their listing and are trading at prices higher than their debut price.

While the majority of companies are listing on MOEX, two have chosen to list on the St Petersburg Currency Exchange (SPEB), which formerly specialised in foreign stocks but now focuses on sanctioned companies. These two were: the Element Group (created on the basis of the assets of Sistema and Rostec); and Svetofor Group (a driver training operator).