Azerbaijani Government should follow the example of Russia and should hold its first 'public IPO', that is initial placement of stocks via attraction of ordinary citizens. That would be better to do the first step within the framework of privatization of the Kapital Bank. In this case tens of thousand of Azerbaijani citizens will be able to become shareholders of one of the Azerbaijani leading banks.
For instance, Russia has held three 'public IPO', and the results of the last of them (on Foreign Trade Bank - FTB) justified even the boldest hopes. Initial placement of the FTB's shares became the most public one leaving behind the IPO of Rosneft, which collected 115,000 applications from ordinary Russian citizens in the sum of 20.2bln rubles ($789.06mln), and Sberbank - 45,000 applications in the sum of 21bln rubles ($820.3mln). The share of the population in the IPO of Rosneft made up some 1%, of FTB some 20%.
Thus, over 131,000 people who put the total of $1.6bln became the shareholders of the FTB. The bank succeeded in placement of some 1.5trln stocks at the maximal price in the sum of $8bln. Market capitalization of the bank comprised $35.5bln. In order to become a shareholder of the bank it was enough to have only 30,000 rubles or $1,172. Though the face cost of a stock comprised only 1 kopeck, an applicant had to buy at least one package for 30,000 rubles in order to become a shareholder. The sum is not so prohibitive. According to Russian statistics, average amount of a bank deposit now makes up some 100,000 rubles or some $4,000.
IPO of the Kapital Bank will definitely be a success in Azerbaijan. Firstly, prestige of the Kapital Bank being the second largest efficiently managed state bank will play a large role. Secondly, the growth drivers of bank chips differ from those of petroleum securities, and this field is considered to be one of the most prospective in Azerbaijan. One might say that bank sector is one of the few sectors in stock market not depending on fluctuations of world oil prices and owing to this is less exposed to volatility. Azerbaijani economics feels a need for additional financing. For this reason, bank sector will expand more intensively than the economy as a whole, though today economy is developing more progressively than the bank sector. So, given the interest for development of bank sector in Azerbaijan, purchase of the Kapital Bank's stocks can be considered prospective. The example with Russia displays that after initial placement of Rosneft's and Sberbank's stocks developed a stereotype among the citizens that IPO is a reliable investment of money with low risks.
The idea of public IPO is to draw billions of dollars from under mattresses and stockings, to decrease consumer demand, and to make people's money work for economy. Gradual social legitimation of state capitalism idea is underway, namely the population takes part in the capitals of large corporations. Stock market should be used as a tool for transformation of money savings into investments. Transformation of investments into securities in contrast to heavy growth of consumer expenditures is one of the ways of decrease of inflation, namely that restricts inflation impact as thus the funds are put into stocks for a long period and are not currently used.
Over 38,000 small-scale enterprises and facilities have been privatized and 1,520 middle-scale and large-scale enterprises have been transformed into joint-stock companies in Azerbaijan so far. Within the framework of the privatization 200,000 people became shareholders, and 400,000 became property owners via small-scale privatization. However, despite the privatization has been in progress in Azerbaijan for already 12 years, there is a lack of theoretical and practical knowledge on the possibilities of the stock market among the population. Unsuccessful attempts to invest securities at the earliest stage of the stock market resulted in unequal optimism and deep disappointment caused by loss of savings.
In order to change the situation it is necessary to technologically work through the possibility thus enabling people to purchase the stocks of a lucrative enterprise. While planning an issue of a large bank it is important to provide for a minimal cost of a stock to enable ordinary Azerbaijani citizens to purchase them. For instance, as mentioned above, a face value of a stock of Russian FTB made up 1 kopeck. At present the preliminary face value of a stock of Azerbaijani Kapital Bank comprises AZN 200,000. However, according to the President of the bank, Rauf Rzayev, the value is too high for natural persons. So, the face value can be decreased for natural persons, and on the contrary increased for juridical persons. The issues will be concretized when the state commission decides how to dispose of the state package (50%). Though it is well known that placement of stocks will be held via auctions, where they will be sold at market price.
The Kapital Bank is a leader of Azerbaijani bank sector. A credit enterprise, which was maintained by state support for a long time, developed into the Kapital Bank today seeing the state as one of its reliable partners. The bank was issued the highest for Azerbaijani banks international ratings. Several years in a row the bank has been recognized by experts as one of the most intensively developing banks in Azerbaijan. It has ratings of two agencies - Fitch and Moody's. It is the second year Fitch issues ratings to the bank. Kapital Bank applied to Moody's only in 2006. Moody's issued BAA-2 rating on deposits in national currency and BA- 2 in foreign currency. Fitch issued a long-term rating of BB-.
In 2006, the Kapital Bank completed introduction of high technologies, FlexCube software, establishment of real infrastructure, introduction of corporative management standards, high-quality services for clients and other. The bank has a good reputation and foreign investors show interest for it seeking for a share in the bank.
Last year within the framework of pre-privatization preparations the Kapital Bank re-assessed basic funds of the bank and revealed that the cost of the bank increased 6 times within 1.5 years. Providing successful work of the bank in introduced programs the cost will increase by additional AZN 5-6mln. Assets of the bank comprised AZN 149mln by the beginning of 2007.
Preparation for privatization of the second Azerbaijani largest bank is in progress. During the first stage of the privatization the state will sell its share not through the trading sessions but via additional issues proportionate to the authorized capital and their sale in open market. Thus, the capital of the bank doubles, and the share of the state decreases by 50%. The second stage provides for privatization of the remaining 50%. As a result of the privatization, bank will receive new money, what will primarily affect the assets.
So, after obtaining the possibility to purchase the stocks, over 100,000 of Azerbaijani ordinary citizens will take an active part both in decision making on bank management (via participation in the meetings of shareholders) and in using the stocks as an investment tool to make the invested money work and make a profit.
Russian analysts relate the success of the IPO of the FTB also to good advertising campaign and broad information campaign held by the bank. Advertisement hoardings called on the citizens to become shareholders of the bank. Television and radio described the mechanism of the financial deals in details. Each stage, both preceding the IPO and during the IPO, was widely highlighted. The bank was fully providing for the information on how, where, when, and, above all, for what one should purchase the stocks of the FTB. That helped people to orient in the ongoing processes. The head of the bank, Andrei Kostin, in person visited the advertisement reception office persuading the citizens in efficiency of their deposits in the bank sector. The efforts were not in vain. During the last several days of application reception queues were waiting in front of the FTB offices before opening. In order to receive maximum applications the bank had to prolong reception period for a day. As a result, the share of the population in the IPO of the FTB turned to be several times higher than it had been planned. The idea of market stability comes true here with rather high shares owned by retail investors oriented for long-term investments. That even covered the shortcomings which appear at mass attraction of non-qualified investors to the market.
Such activity of the bank in attraction of ordinary civilians to stock purchase and in providing them with favourable conditions can be also explained by the fact that last year at the meeting with the members of the Government Russian President, Vladimir Putin, charged the ministers to hold a 'public IPO'. He commissioned the Economic Development Minister, German Gref, with enabling the citizens to buy FTB's securities by making the price of a stock maximally available. However, not only the ordinary citizens showed high interest for the securities of the bank, but also professional participants of the stock market, what is another proof for reliability and profitability of such investing. The FTB plans to direct the funds received via the IPO for development of different activities both in Russia and abroad. According to the estimations of the bank, the attracted funds will suffice to provide for financial stability of the FTB for 3-4 years.
Nevertheless, plenty Russians still remain indifferent for the securities of the bank. The essential reason for refuse to purchase the stocks is lack of information, unavailability of guarantees on profitability of the stocks, distrust for banks, lack of money and time.
It is necessary to try to hold a public placement of stocks in Azerbaijan preliminary launching a wide campaign on work with the population. That is a new perfect form of privatization, as it opens a way for ordinary citizens to directly use the wealth of the country, and in particular a way to such a large and reliable bank.
