Change the paper money

In autumn 2006 there was a momentous event for the domestic property market. The initial transparency of the construction business, which enthusiastically told recently by experts, started to bear fruits. The first swallow was the Sistema-Hals, a subsidiary real estate development and structure of AFK Sistema, which in November 2006 held an IPO on the London Stock Exchange by selling shares at $ 432 million to this fund only "Open Investments", created to finance construction projects " Interros, was submitted to the Exchange.

"System" was not the only structure to have declared in 2006 its intention to withdraw "to the audience. First of all, observers noted the plans of Basic Element, Oleg Deripaska, to withdraw the stock exchange holding Glavstroy. Since the end of 2006 to date, one of the most debated topics are the plans for the PIK Group, which plans an IPO in the near future (perhaps at the time of publication of the article accommodation already held).

MIRAX Group also gradually preparing a private placement of shares of one of its major projects, which should be followed and a public offering on the stock exchange. And the biggest news of this kind to date - IPO companies Lev Leviev's AFI Development, during which managed to sell 100 million shares at $ 14. Thus, AFI Development has become the largest property developer by market capitalization Russia, ahead of "System-Gals" and "Open Investments". The idea to change the paper company's shareholders liked the money and went to the people.

Customer ripe

And yet, why developers needed to open the accounts of their business and give up some assets on the will of volatile stock market? And why is this segment of the market is ripe for IPO only now? Answering the latter question, Aidar Galeev, Director of consulting and research company "MIEL - Commercial Real Estate, said:" The company must reach a certain scale in order to raise funds through IPO would be effective for her (including all costs). In 2004-2006, many development companies passed the phase of consolidation and optimization, just to think about it now. "

"It is very simple - real estate in Russia only recently become acceptable product on the world market - continues the theme of Cameron Sawyer, president of the board of directors GVA Sawyer. - The turnaround came quickly, almost overnight real estate in Russia, on which serious investors watched in curiosity, became popular and in demand. For real estate companies capital, both for the baker's flour - the main raw material for the business. And despite the fact that today a lot of investment capital is drawn inside Russia, development companies always need more. The biggest and cheapest source of capital - the international stock market. "

Status in the bargain

True, the financial aspect - is not the only one. According to Chairman and CEO of the corporation MIRAX Group Andrew Kletsko, IPO - a fair assessment of our business. Therefore, the aim IPO is not only and not so much in attracting money, how much to increase the capitalization of the company, leaving its business to a new level. Despite the success of the IPO several developerckih structures, experts doubt the universal effectiveness of this method of raising capital to meet short-term balance sheet problems. "Today the IPO cost for most developers of expensive bank loans (12-14% on average when placing an IPO and in 9-11% costs the bank loan)", - says Alexey Kurushin, CFO of Penny Lane Realty.

Aside from the relatively high final value of IPO, associated with the creation of "white" and "open" structure, is not guaranteed and very successful initial public offering on the open market. "Despite these shortcomings, today the majority of the leading real estate companies are in his plans for placing their own IPO, - says A. Kurushin. - Main objectives: confirmation of the current financial market capitalization of the business (in the calculation of the possible sale of all or part of the business), raising the image, more diversified portfolio of funds raised. The successful placement of IPO, of course, contributes to and enter the new limits of classical drawing. But most importantly, a successful IPO placement of works on improving the status of risk. And finally, with the help of IPO can get a fair market valuation of businesses. "

I will be white and fluffy

Is an IPO the company's desire to fix the capitalization of the crisis and possible sales falling business profitability? In answering this question, Aidar Galeev said: "Theoretically, this goal can become a owner of the company. However, in practice the procedure of preparation for IPO - a lengthy process that takes from 5-6 months to 1.5 years. This is a long-term solution, not dictated by short-term market situation. Another thing is that in a projected stabilization of the market begin to take on the special role of such factors as the maximum reduction in their cost of capital, the availability of modern technology management and operations, trust companies, etc. To achieve these goals IPO is indispensable.

At the will of the elements

Cameron Sawyer said that when placing the stock market in general is strange to talk about "fixing" the capitalization, because it just becomes subject to volatility of stock price. "The big disadvantage in placing the company's IPO is that if business starts to deteriorate, or even just assumed that things go wrong - the stock price falls, - said Mr. Sawyer. - It turns on the contrary: IPO makes the company more dependent on sales of crisis or falling business profitability - the company loses market capitalization, sometimes exaggerated. "

The capitalization of real estate development company, established at the time of placement market IPO, by itself does not insure the owner developer of business, says Alex Kurushin: "Remember that when placing an IPO on the stock market are displayed, representing no more than 30% of business value. At the same time by placing it receives in the passive new commitments. Although the direction of the funds thus raised - the exclusive authority of the owner of real estate development company. "

At IPO, as in any other scheme to attract outside financing, a major task for the developer is to maintain control over their own business, stress in the Penny Lane Realty. Therefore, the value placed on the market commitment is typically less than 30% of business value. According to experts Miel - Commercial Real Estate ", to talk about the typical structure of ownership is difficult, because not many IPO was conducted. Usually it is about 20-25% of the shares that are traded on the exchange. "The recent IPO companies such as Mirland and Sistema-Hals, based on the sale of a minority stake, the most preferable in terms of management of the company, because they retain control, - said K. Sawyer. - But minority interests is always less attractive to investors. "

Capital - a "raw material" for the development business, reminiscent of the company GVA Sawyer. And, of course, the main objective IPO - to attract as many as possible of the universal "construction materials". But perhaps another reason: according to Cameron Sawyer, shareholders have a successful real estate development companies can use the tactics of a partial "withdrawal", that is to take part on investment instead of investing all their money into projects.

Milk and honey, cheap loans ...

Any company is guided by considerations of financial expediency. "According to the new conditions for the loan for the implementation of the next construction project developers need to make 30% of own funds, - says Vladimir Kozlov, Commercial Director," Augur Estate. - In cases where the Company is currently implementing several projects, such amount may not be. And then the financing is possible, for example, by entering the company's stock exchange and the sale of its shares. Further work carried out before leaving the company at IPO, will be a decisive factor in the positive decision of financing projects of the company by foreign banks that provide loans on more favorable terms. In this regard in the near future can be expected to increase the number of construction companies seeking to enter the international securities exchanges.

Arguing about the benefits of IPO, K. Sawyer calls not to forget about the specifics of development business: "The borrowed capital and business capital - are completely different category - he explains. - As a rule, borrowed funds are not used in the initial stages of drafting, but in the later stages of the project, they cover only 50-60% of actual costs. So, to implement the project cost, for example, $ 300 million, the developer must have at least $ 120 million in business capital. Public placement helps address this problem, and borrowing - all other tasks.

Regardless of the strategy of a company it would be shortsighted to consider IPO only as a way to meet short-term liquidity problems. Aidar Galeev emphasizes that IPO - a way to attract not just cheap, but cheap and "long" money. "It is quite expensive (both in time and cost) method, which involves the implementation of a number of requirements", - he adds. Required to ensure the timely establishment of reporting, create a board of independent directors, the Remuneration Committee, the service works with investors, etc., explain in Miel - Commercial Real Estate ". Necessary to optimize the entire system of government to create a transparent mechanism for investors' decision-making, to demonstrate the structure of ownership. "You also need to" share "part of the property that not all of the soul, - says A. Galeev. - You must disclose all information about the company, use only legal methods of doing business, etc. "

Opaque - not to disturb

The issue of transparency remains sick for a construction business in Russia. Each stage of entering the site and titling of the constructed object full of "unproductive" expenditures required to maintain the "gray" accounting. Meanwhile, the success (and in general - the very possibility of organizing IPO) depends on the transparency of business developer. Its really achieve in a year or two. Opaque in the development business is the process of privatization of land or purchase it from the state or adjacent structures. Other aspects of the development business, depending on skills and business culture of the company can and should be transparent. For example, the developer simply must hold really transparent tender among general contractors and take measures to prevent internal corruption.

According to D. Semykina, CEO of the New Square, IPO boom in real estate development, first of all, since the start of the legalization of business in Russia. "Many companies have already passed the period of semi-criminal accumulation of seed capital and is now quite rightly want to go to a civilized level of activity - he says. - Worldwide, an IPO is a good way to attract capital, and are pleased that Russia this trend is also not shy away from. However, this method currently available is not all market participants. Before the IPO should be a large number of structural improvements within the company (go to international financial reporting standards, to establish a public credit history, undergo legal and financial diligence, etc.). Not at all now have this opportunity. But those who decided to start this process within the company, it is only in favor.

Russian are coming!

On the issue of transparency in business, there is another aspect relevant to the preparation of the IPO: Do the potential shareholders can expect that the financial statements, published in preparation for the IPO, reflects reality rather than "pumps up" the capitalization? Ilya Shershnev suggests that in most cases statements of fact substantially overstated, more precisely, the assets have the potential to ensure that rather difficult. He also observes that the dynamics of the value of shares after many placements have shown a negative movement.

Recently, concern about reports of Russian companies entering the stock exchange, expressed in the leadership of NYSE Euronext. New York stockbrokers are upset that it was too liberal demands of the London Stock Exchange (LSE) attracted thither shaft IPO because of the former Iron Curtain, and the New World nearly lost his share in this segment. Especially, these claims relate to the site AIM (Alternative Investment Market), accommodation that does not require such detailed disclosure, as well as restrictions on the minimum capitalization. "Most developers aktsioniruyutsya today's younger brother, the London Stock Exchange AIM, regulation of which is simplified, and the procedure differs from the classical public offerings", - said I. hornets.

"Undoubtedly, the United Kingdom is concerned" Shaft »IPO companies from emerging markets, primarily with Russia, it is associated with increased risks for investors, many of whom are British residents, - says Sergei Sviridov. - The likelihood that New York reconquered lost "piece of cake" is unlikely until repealed the law on disclosure of information, acting in the U.S.. Other possible scenario: you can talk about choosing the site for placement in Europe - above all, Euronext and Frankfurt Stock Exchange. Although the size of the market there is less, for some, this option may be beneficial.

Some experts believe that if the British regulator agrees to tighten the screws after Uncle Sam, the Russian companies, which in 2006 accounted for 70% of foreign placements at the LSE, may gradually spill over to the misty Albion for the Russian site, with all its imperfections of the audit. True, Cameron Sawyer said another aspect: "Certainly, the Western investor worries that Russia is no waste practices to combat the use of insider information. Therefore, foreign investors tend to avoid deals with Russian shares and require large discounts, if any, buy them. That is why it is best for the Russian companies to conduct an IPO in London and not in Moscow. "

Do not mud

The process for the Russian developers at the IPO is a little more than six months, but this sphere has become the arena of dirty PR-technologies. Harmless technique - cast doubt on the stated capitalization of the company, preferably before the road-show (which will be announced price range of accommodation). And recently, one of the officials of the capital building complex (controlling between Moscow business development company), organized a leak in the media about the problems of one of the largest developers in preparation for an IPO, telling about his conflict with Moscow authorities. The company itself declined to discuss the case, and Ilya Shershnev, development director of Swiss Realty Group, said: "I believe that such comments could be made only in the case of 100% competence, otherwise you can incur a heavy responsibility for his words." Incidentally, another advantage of an IPO in London, according to experts GVA Sawyer, - that black PR tools they use much less than in Russia, where the level of business culture is still quite low.

For the Western investor relations company with a cloudless Moscow authorities are not the main criterion in assessing the prospects of investment in its shares. "To own shares of real estate development company with a low level of professionalism and transparency can be very risky and may even lead to loss of investments - said K. Sawyer. - All depends heavily on management: the company's ability to grow and increase capitalization, bringing profit to the investor. The company, which owns certain valuable assets through the use of "administrative resources" in the past, neuteshayuschie prospects. What next? "Administrative resource" is today, but tomorrow, when the change of power, it can not be, and will not guarantee long-term development of the company. "

Who's new?

Prospects for further IPO among real estate companies, according to experts, are clouded, but limited. Denis Semykina ("New Area") is sure that after the big companies on the stock exchange followed and medium businesses. Other experts believe that the average load of publicity does not pull. "We can confidently say that developers with a turnover of more than $ 500 million it makes sense to hold IPO, - says Sergey Sviridov (SMINEX). - To smaller companies does not make sense to become public, because from an economic point of view, they get nothing, but rather lose the extra cost. Obviously, the number of public companies will increase. But the mass, this process will not ever. This may be about 2-3 years of rapid development with access to the stock exchange (for this time) about 10-12 companies. Then the situation is stabilized - to one, maximum two companies a year.