Incentives for entering stock market may need to be even stronger than for developing by borrowing - Central Bank Governor Nabiullina
MOSCOW. Oct 30 (Interfax) - Incentives for companies to enter the equity capital market may need to be even stronger than incentives for borrowed funds to develop, and investments must rely on the securities market in addition to borrowing for the economy to "stand firmly on its feet", Central Bank of Russia Governor Elvira Nabiullina said.
"How can companies that cannot obtain preferential loans or do not want to take on excessive debt at high interest rates develop? The answer is usually the same: let us create even more preferential loans. From the perspective of an individual company, this is, of course, a completely logical position. However, I want to say that from the perspective of the economy as a whole and responsible economic policy, this will be a dead end. The more preferential loans there are, the higher the key rate will be, so that a balance is reached and inflation does not accelerate. Nevertheless, we want - I am sure that we all want - for credit to be accessible to everyone, to all citizens, all businesses, all regions, and even the federal budget. In our view, in these conditions, until rates moderate, an important alternative to increasing preferential lending is for businesses to turn to the stock market and attract new shareholders. For the economy to stand firmly on its feet, investments must rely on both credit and the securities market," Nabiullina said on Thursday in the State Duma.
Nabiullina said that the corporate bond market is currently sending good signals, though equity financing, the public offering market, and the IPO market are developing very slowly.
"Many companies are preparing for an IPO in one way or another, but are biding their time to list at a higher price in a growing market. This is a perfectly rational strategy, and it is understandable. Could the government expedite their IPOs in this situation? We submitted our proposals to the government last year. Progress has already been made regarding subsidies for small- and medium-sized businesses to list their shares, but we believe we need to move forward. Government support should not be limited to a preferential loan; it should also extend to share placements. Companies should have a choice to receive a subsidy in the form of a preferential loan or a share placement subsidy, and possibly even a tax deduction," Nabiullina said.
"Perhaps the incentives for entering the stock market should be even stronger than for developing with debt. Why? Because it does not lead to companies becoming over-indebted, and it relieves the budget of such a long trail of interest expenses on preferential loans. Finally, unlike a bank loan, acquiring shares, as well as bonds, if they are not acquired by banks, does not create new money or accelerate money supply growth, and has less of an inflationary effect," she said.
