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.
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