Russia's Finance Minister instructs to develop use of convertible bonds for privatization - source
MOSCOW. Aug 26 (Interfax) - Russia's Finance Minister Anton Siluanov has instructed his deputies to study the possibility of using convertible bonds as a tool for privatization and development of the capital market overall, a source familiar with the discussion told Interfax.
The source said that Siluanov gave the instruction following a meeting he held in early August. The deadline for implementation is October 31.
Russia's financial authorities have recently been actively discussing implementing the instrument of convertible bonds on the domestic market. The Central Bank of Russia has said that it would like to boost demand for convertible bonds by creating conditions for using the instrument at the pre-IPO stage, thus resulting in an issuer being able to attract financing on more favorable terms before going public.
The first round of adjustments to issuing regulations for convertible bonds was made in 2018-2019. However, the financial instrument did not become popular among Russian issuers, the CBR said in a recent report. Surveys indicate that most potential issuers are unfamiliar with convertible bonds, possibly due to a lack of examples of their successful placement on the market and the existing practice of satisfying demand for funding through bank loans and traditional bonds, the CBR wrote.
The CBR proposed discussing the possibility of enhancing existing regulations around the coefficient for converting securities, analyzing the potential for moving from a fixed to flexible coefficient.
Major players on the financial market also noted the necessity of adjusting regulations surrounding convertible bond issues. Gazprombank is working actively with the CBR and other market participants to create opportunities for issuing convertible bonds on the Russian market, First Deputy CEO of Gazprombank Denis Shulakov previously told Interfax in an interview.
Shulakov said that current legislation did not allow for the instrument to be issued in its traditional form, as there is not enough flexibility in how the conversion coefficient is defined or which payment method is to be used in the conversion.
A LIST FOR INCENTIVE PROGRAMS
A source told Interfax that Siluanov had also instructed the government to continue perfecting the incentive system for management at state-owned companies, with rewards tied to growth in the market value of the company's shares. A list of companies in which these long-term programs will be introduced is to be finalized by the end of October.
The Russian Finance Ministry said at the end of July that it had put together a draft decree to implement long-term incentive programs for executives at state-owned companies which already have shares for sale on the stock market or which plan to go public. The document was published on the regulation.gov.ru portal for public discussion.
The decree stipulates that employees can receive rewards in the form of company shares or other financial instruments whose yield depends on the changing value of a security, the ministry said. The ministry proposed that this reward not be included in the list of annual personal rewards for executives. The board of directors will vote on the specifications of the program in each company, without violating the key principles for implementing the long-term incentive program as agreed on by the working group within the government commission for optimizing budget expenditure.
The new incentive program is part of the Finance Ministry's plans to bring state-owned companies onto the stock market. "Whichever consultants we ask, we hear that the main thing to do for state-owned companies in order to motivate them to conduct an IPO and place their shares is to change the management incentive system, that is, peg the management incentive system to the value of shares," Deputy Finance Minister Ivan Chebeskov said earlier.
Long-term incentives are the foundation allowing the management at state-owned companies with shares on the stock market to work effectively. This mechanism is in line with the interests of shareholders and future investors who want the shares to grow in value, Andrei Vorontsov, head of the Finance Ministry's department for regulating property relations, said of the draft decree.
