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- Growth Strategy: Central Bank and Ministry of Finance to encourage businesses to place shares
Growth Strategy: Central Bank and Ministry of Finance to encourage businesses to place shares
The Ministry of Finance and the Central Bank have decided to encourage businesses to place shares on the stock market. To this end, the authorities intend to restructure the budget resources allocated to subsidize interest rates on loans. The proposed measure is part of a strategic change in the approach to the financing of enterprises and monetary policy in Russia, experts believe. The details are in the Izvestia article.
New approach
The Ministry of Finance and the Bank of Russia intend to abandon subsidizing interest on loans for business in favor of stimulating the placement of shares. This was announced by Finance Minister Anton Siluanov.
Now, according to the head of the department, part of the interest rates are subsidized, at the expense of which it becomes possible to attract loans for the current investment activities of companies.
"The task that we see together with the Central Bank is to restructure these resources from the budget from subsidizing interest rates to subsidizing the attracted capital", - said the Minister.
This initiative has already been discussed in the State Duma, reminded Siluanov. It is being considered in the context of working out the main directions of monetary policy. The implementation of the measure is also included in the government's work plan.
Izvestia editorial staff sent inquiries to the Ministry of Finance and the Central Bank of the Russian Federation. As of the date of this publication, no answers have been received.
Useful initiative
The initiative to switch from subsidizing interest on business loans to stimulating the placement of shares is part of a strategic change in the approach to financing enterprises and monetary policy in Russia, says Nikita Chaplin, a member of the Committee on Budget and Taxes.
- Such a change is aimed at creating a more stable and diversified financial environment, where companies can raise capital not only through loans, but also through the issuance of shares and bonds," the parliamentarian explains.
The main purpose of this step, he says, is to improve the capital structure of companies and create conditions for their more sustainable growth.
- When companies raise funds through issuing shares, they receive capital injections that do not increase their debt load. This reduces the risk of bankruptcy, which may arise in case of a drop in revenues or an increase in interest rates," the MP said.
In addition, the issue of shares allows companies to attract more long-term investments, which is especially important for financing large-scale and long payback period projects, Chaplin specifies.
The main mechanism of the initiative involves the use of financial instruments, such as subsidies for the issue of shares, tax benefits or guarantees for the initial placement of securities, lists economist, director of the service "Merchant CRM" Anna Anisimova. Companies entering the capital market get an opportunity to attract long-term investments rather than depend on short-term credit commitments.
- This creates conditions for more sustainable growth and reduces the burden on the banking system, which has traditionally provided the bulk of business financing," emphasizes Izvestia's interlocutor.
The general principle that now works for a small number of companies in exchange-traded bonds is subsidizing both coupon and placement costs, reminds Alexei Kurasov, Head of Corporate Finance at Finam Financial Group. Such a measure, in his opinion, gives a much better effect in comparison with soft loans.
- The state allocates money not in advance, but in 6-12 months after the issuer pays the costs. Investors on the stock exchange take the risks of default rather than banks at the expense of deposits," the expert explains.
In shares, this mechanism is now realized only at OTC placements by reimbursement of expenses for individual investors. This way it is possible to return up to 50% of the investment amount, Kurasov says.
In favor of competition
Nikita Chaplin is convinced that the transition to the model of share placement incentives represents a fundamental change in monetary policy. It will make it possible to use budgetary resources more efficiently, directing them where they can bring the maximum return.
- Instead of subsidizing interest on loans, the government can stimulate investment in shares, creating a more developed and competitive financial market. Such a movement supports the domestic capital market and reduces dependence on foreign borrowings," the parliamentarian believes.
Thetransition to stimulating share placements is particularly important from the point of view of monetary policy, as it helps to reduce inflationary pressure, emphasizes Anna Anisimova. The traditional model of subsidizing interest rates is associated with the growth of money supply, which can increase inflation risks.
- In turn, capital market support allows redistributing resources through market mechanisms, which stabilizes the financial system and enhances its transparency," the expert says.
In addition, such a measure stimulates the growth of corporate responsibility and improved management, because public companies are forced to act in the interests of shareholders, the economist adds.
In search of incentives
Nikita Chaplin believes that business can be stimulated to place shares through a number of measures. First of all, it is necessary to improve the legal framework and create favorable conditions for companies that have decided to enter the stock market.
- This may include tax benefits for companies and their investors, reducing bureaucratic barriers and increasing the transparency of stock markets," the deputy lists.
No less important are activities to improve the financial literacy of company managers and investors, the parliamentarian believes. Explanatory work and educational programs can contribute to a better understanding of the benefits and risks associated with entering the stock exchange, he believes.
Awareness of companies is also important, says Anna Anisimova, as businesses often underestimate the benefits of public offerings. At the same time, issuing shares allows not only to attract capital, but also to increase the market valuation of the organization and its recognizability, strengthening its reputation.
- In addition, the government can offer direct support in the form of subsidizing the costs of preparing the offering or creating co-financing programs," the economist adds.
Insurmountable barrier
However, the current key rate may become an obstacle to a successful transition from subsidizing loans to the placement of shares, warns Nikita Chaplin.
- High rates reduce the attractiveness of equity investments compared to yields on deposits and government bonds. This may deter potential investors from buying shares, especially in conditions of economic uncertainty," the MP believes.
Reducing the key rate or creating mechanisms to compensate for its impact, such as state guarantees or direct government participation in equity investments, may become important factors in the successful implementation of this initiative, the MP believes.
- The transition from subsidizing interest rates to encouraging equity offerings requires a comprehensive approach that includes legislative changes, tax incentives and educational initiatives. This can create a more flexible and sustainable financial environment where companies can develop effectively, which in the long term will benefit the economy as a whole," Chaplin summarizes.
Complex problems
However, the high key rate itself is not a serious problem, Alexei Kurasov believes. In a high interest rate environment, investing in real businesses becomes the best defense against inflation.
- An efficient business adapts and raises prices, yielding a return on capital above the deposit. And a deposit with accelerating inflation burns, in fact, the purchasing power of the depositor's money," the expert reminds.
In his opinion, the key obstacles for successful placement of shares by business today are quite different. The first of them is the lack of incentives for long-term investments of large capital.
Another obstacle is structural problems with liquidity. After foreign investors left Russia, liquidity on the stock market has fallen dramatically, and the authorities have not taken any support measures.
- Out of 200 brokers, less than 20% attract investors and assets to the market, and almost 40% are organizers of initial offerings of shares and bonds," says the Izvestia interlocutor.
The tightening of requirements to the qualification of investors on the stock exchange is also a problem. At the same time, on the riskier OTC market, there is a regulatory privilege of 600 thousand rubles per year for investments without restrictions for any investor.
- Many systemically important banks have already registered their financial platforms in order to bypass the new strict requirements for the stock exchange, and instead of stock exchange transactions in the mobile applications of banks there are advertisements for OTC ones without any restrictions," Kurasov points out.
According to him, the low level of corporate governance also remains a serious difficulty. The key feature of the Russian market is a soft regulation of reporting requirements by the Central Bank.
Among other problems, the expert also singles out the lack of audit and inventory of stocks of public companies, violations of dividend policies and withdrawal of capital in favor of majority investors.
- Whether the Central Bank will be able to bring order to the corporate governance of public companies, as it was done with banks in the 2010s, will depend not only on the formation of institutional local long-term capital, but also on further attraction of foreign investment from friendly countries with strict requirements to corporate governance, - Kurasov is convinced.
In general, today many issuers have plans to place their securities, says Anna Kazaryan, head of Sirius Capital's equity analysis department. The Ministry of Finance and the Central Bank may be interested in their initiative.
- However, the issuers will closely monitor the valuation they will receive when placing their securities, which is strongly influenced by macroeconomics and external factors. With high rates and low valuations, issuers may still refuse new offerings," the analyst warns.
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