Lack of demand limits opportunities for large share placements, 20-30 bln rubles currently the limit - Russian deputy finance minister

MOSCOW. Dec 12 (Interfax) - A lack of demand is the main issue limiting companies' ability to place shares on the stock exchange at a couple of percent of their capital, even though many issuers, including those with state participation, are ready to offer the market a more substantial amount, Deputy Finance Minister Alexei Moiseyev said.

The maximum amount that can currently be raised in a single placement on the exchange is between 20 billion and 30 billion rubles, he said.

"This year, I think we saw most clearly what is truly holding back the development of our financial market, particularly the stock market. For a long time, it seemed there was a strange reluctance among our issuers to come to market and place securities. This year, we saw that the problem is not with supply, but unequivocally with demand," Moiseyev said during a parliamentary hearing discussing the draft Guidelines for Financial Market Development in Russia for 2025-2027.

"As for the bond market, which has traditionally been quite deep, we quickly saw that when the Central Bank of Russia tightened its requirements for bank lending, within just a month all the companies rushed to the bond market, and it was quickly exhausted. Ideally, it would have been good for the share of the bond market relative to loans to grow, but this did not happen due to the same reason - insufficient demand for securities. The same applies even more so to the stock market," Moiseyev said.

The Finance Ministry has prepared a list of state-owned companies that could potentially be brought to market, he said. This includes plans to reduce the state's share in the state corporation DOM.RF next year. However, the ministry has not publicly named other IPO candidates.

A large company entering the market with insufficient demand would have to limit a placement to volumes that would not ensure the future liquidity of secondary trading, Moiseyev said.

"What are we facing? We are facing the fact that if you bring a decent company - one of those we are discussing - [to market] you might be able to sell just a couple of percent of the company's shares. This is essentially laughable. To create a proper stock, one that trades well, it's generally considered necessary to float at least 15%. This is standard practice. Anything less, and the stock cannot achieve sufficient liquidity," Moiseyev said.

"Again, without naming names, over the past few weeks, we have met with half a dozen companies that said, 'Look, we want to do this. We have shareholders who want to enter the market, not sell to other shareholders. We want to list [on the exchange] to raise capital for the company,' and so on. But we understand that given the market's capacity and current opportunities for placement, we can raise a maximum of 20 billion to 30 billion rubles in a single placement. And that's the limit right now. This is a significant problem, of course," he said.

"I believe our main focus and effort should be on attracting funds to the stock market and enhancing the attractiveness of stock market instruments compared to traditional savings methods, such as deposits, and, dare I say, cash," he said.

"Our pipeline of issuers is already formed. But we understand that we simply lack capacity. That's why I believe our primary task is to develop sustainable demand for securities. It is clear that monetary tightening does not encourage money inflows into the stock market anywhere in the world. These are always inversely correlated. This is written in every textbook. So, right now is clearly not an ideal moment. But it's not just about this. Time will pass, inflation will decrease and monetary policy will eventually change. But that doesn't mean the market will grow tenfold. The issue is not the current cyclical moment but rather the need to develop a culture of investing in financial markets," Moiseyev said.

"Many companies are saying, 'We want to sell 15%, but we can only sell 1%.' I assure you, these are not outdated state corporations; they are genuinely strong market companies with high returns on equity. But it's simply impossible to place more than 20 billion on the market right now," he said.