Russian IPOs Get a Boost as Regulator Unlocks Pension Cash

The revival of Russia’s IPO market is set to accelerate as authorities plan to give pension funds the green light to invest in smaller deals.

Initial public offerings may double this year to over 80 billion rubles ($862 million), according to estimates from Russian investment firm Aigenis, and could further increase if the pension rules are loosened.

While that’s a far cry from the $3 billion peak in 2021 before the Ukraine invasion, it’s part of a broader plan by government to develop capital markets and support the economy.

In a draft order released last week, Russia’s central bank said it would allow non-state pension funds to buy shares in smaller IPOs. It plans to lower the limit to 3 billion rubles from a previous cap of 50 billion rubles.

«This is good news as IPO sales are now mostly driven by retail investors, which makes it look a bit like a casino,» said Kirill Chuyko, head of research at BCS. «Significant inflows from professional investors would be beneficial for borrowers and the market.»

Russia’s markets are off limits for many international investors because of sweeping US and European sanctions, as well as Russian restrictions on foreign currency transfers and overseas stock trading. Local retail traders have also supported the stock market, helping propel the MOEX Russia Index to a record.

For smaller Russian companies, selling shares is becoming increasingly attractive because of high interest rates at home and rising yuan borrowing costs.

«This is a desperate attempt by the central bank to attract institutional investors,» said Oleg Vyugin, a former first deputy governor of Russia’s central bank.

Even so, he thought the new rules would gradually work at pulling pension cash into more IPOs. As of the end of the third quarter, the latest data available, non-state pension funds held 7.4 trillion rubles.

«You cannot build an IT company through expensive loans and banks will require collateral,» he added.

So far in 2024, there have been four listings that raised about 23 billion rubles, more than half of last year’s total. Leasing firm Europlan was the biggest at over 13 billion rubles and microfinance firm Zaymer is also planning to list.

Even without government support, the Moscow Exchange sees over 20 companies selling shares on the bourse this year, Tass newswire reported in January.

«A renaissance of initial public offerings is one of the significant results of the last year,» the Bank of Russia Governor Elvira Nabiullina said on April 8, while speaking in parliament. In an email, the central bank’s press service added that the new rules are «aimed at removing excessive barriers and creating additional incentives for funds to participate in IPOs.»

The exodus of foreign financing has prompted domestic players to step in. Local companies including BCS and Sovcomflot have captured market share and new players like Start Capital have emerged. The banks earn about 3% to 6% from the sale volume, Kommersant newspaper recently reported, citing a survey of brokers and banks.