This is a post that was written as a response to the post on FB. Here is the link:
1. IBs: These banks largely have 2 purposes that they work towards: (1) Act as an intermediary between entities who have capital, and the entities who needs capital. (2) Act as a broker/advisor/manager in the negotiated transactions, that we commonly call M&A transactions. As such, these intermediaries serve an important role of acting on behalf of the initiating party. The IBs are referred to be “sell-side” agents, which basically mean that they work for the party that is on the selling side of the trade. Hence, without engaging in the illegal matters, they are free to express their views according to their convictions. To express their views, IBankers produce a document, called “prospectus”, which usually covers such topics as: business description, business related risks, strategic initiatives, financial summary (at least 5 year history), industry and economic outlook, planned use of proceeds etc. This document is usually written off by an in-house legal team, which basically means that most of the times this document is written by using a dry legal language, so the words such as “unprecedented growth”, “high profitability” and “leaders of the market” are not common. IBs are institutions who care about their long terms prospects, and hence they do usually are the epitomes of conservativeness and rationality. However, companies themselves are free to use any language that they prefer in producing investor related materials.
2. Lock up period: First, if we talk about US based IPOs, then the main regulatory body, “Securities and Exchange Commission” which regulates the market participants, does not require companies that are going public to have a “lock-up period”. Rather, it is a phenomenon that companies themselves choose to implement.
Second, the investors who will have to deal with the “lock-up” are the insiders, or early investors, who bought into the company before it goes public. Understandably these investors are usually institutional players who possess big chunks of company shares. These players usually get better terms in terms price or other privileges, such as warrants, covered call or convertibles. Regular investors/traders who buys shares after it goes public or at the moment of going public are exempt of any sort of lock-up, hence this shouldn’t concern them at all.
Third, the “lock -up period” is necessary for a number of reasons. One big reason is that it allows the stability of the price right after it goes public. This is necessary for both the markets and for the ethics related reasons. Because, insiders often possess information that might send the wrong message to the public, even if their selling is not company specific. In any case, the investors who will have to deal with the lock-up have to have the capacity to do their homework and be ok with the lock-up.
3. "Эти коэффициенты, типа current ratio, EBITDA, leverage, бла-бла там на хер никому не нужны." - These factors on a stand lone basis, might have a little meaning, but should be considered as a part of a bigger picture analysis. Qualified investors, should be able to analyze companies and be able to form a qualified opinion or leave this matter on the hands of professionals.
4. The reasons for going public: There are several reasons why companies might decide to embark on this journey. Number one, its all about cost of capital. In a broader sense, there are only 2 types of capital: debt and equity capital. Both of them have several advantages along with their disadvantages. It will take too much space to explain here, but sometimes one option might be more preferable than the other.
But, these are some of the reasons for going public: (1) founders or early investors consider the IPO as an exit from the investment; (2) companies might consider getting more credibility; (3) shares of companies can be considered as a currency in engaging in M&A activities, in meeting their operational expenses etc. One example is the practice of stock options that companies might grant to their employees; (4) albeit subjective factor, but some companies might consider the price for shares as a measuring stick. Of course, the higher the better.
5. In regards to Kazakhstani IPOs: I would not have a strong opinion as of now, but if the AIFC launches with the set of rules and principles similar to those that are being advertised, then our companies, with the right value propositions might be considered for investing to participate in the growth of the company. I personally am avid supporter of Air-Astana, as I have been following the company’s financials since 2010. With the right pricing, I would very much consider it to add to my portfolio. But then again, both the legal and macroeconomic framework is of utmost importance.