As the second wave of the global financial crisis unveiled in the second half of 2011, the capital markets virtually closed for Ukrainian businesses. Uncertainties about the economy at home and abroad do not offer much hope for a full-fledged reopening of the capital markets for Ukrainian businesses this year. However, it does not seem to be all doom and gloom and there is already some small glimmer of hope that there will be some activity on the capital markets front either later this year or in 2013.
Capital markets projects always involve a significant amount of effort and stress from all parties of the process. Everybody has a common goal to get everything done just before the ever-urgent windows for the issue close.
This time of crisis and uncertainty is precious and not to be wasted. Now is a great opportunity for prospective issuers and investors alike to get to grips with preparatory work in time for when the capital markets (sooner or later) open their doors for Ukrainian business.
1. Why Capital Markets?
In recent years, IPOs and Eurobonds seem to have become fashion words in Ukraine. The fact that Ukrainian businesses are more willing to become public is definitely something to be welcomed. However, at the same time, before setting off on the "going public" road, a company must have a clear strategy for doing so and realise that the public status entails certain obligations, none of which should be treated too lightly.
2. Organisation, Organisation, Organisation
The breakneck speed with which capital markets normally operate requires all parties to be constantly on guard. Excellent organisation is essential to ensure the project moves at the desired speed. This is true for all parties involved in the process but probably more so for the issuer. Organisation of documents and financial records for due diligence and audit, and setting up a responsive bilingual communication team are the main areas in which each issuer needs to invest significant time and resources. Issuers should start getting their house in order as early as possible if they are contemplating IPOs or Eurobond issues.
3. Pre-Offering Restructuring
Most capital markets projects involve some degree of pre-offering restructuring, but probably more so among IPOs. It is generally recommended that businesses who contemplate an IPO enter the process with all internal restructurings completed prior to the start of the formal offering process. This means that a foreign holding company in the form of a public company has to be in place. Any restructuring as the work on the prospectus progresses may contribute to unnecessary delays and possibly even missing precious windows for successful deal closure.
4. Know Your Problems
In every capital markets project, issuers have a natural tendency to present only good things and to keep any difficult issues to themselves. This approach is very risky as any undisclosed issue may potentially backfire in the future and cause even bigger problems. Ideally, the business should sort out any significant problems before commencing work on a capital markets project. However, realistically, it may not always be possible to do this. In any case, the company must have a clear understanding of what its issues are and communicate them to its advisors. All significant risks, liabilities or conflicts, whether real or potential, will need to be properly disclosed as risk factors in the prospectus and may serve as a safety blanket if any such risks later materialise.
5. Remember Approvals
Each business may have a unique set of procedures to follow. For example, when dealing with public bodies or companies where the state has a stake, lead-managers need to bear in mind that they will need to comply with special rules of procurement, approvals and consents from various bodies. Loan documentation under Eurobond issues (structured as loan participation notes offerings) has to be registered with the National Bank of Ukraine. Ukrainian joint stock companies may be required by law - or by their statutory documents - to approve certain transactions at their general shareholders" meetings. All this needs to be carefully assessed at the outset because getting all approvals is a significant factor affecting the timing of the transaction.
6. Due Diligence
Enough time should be allowed for necessary due diligence. Depending on the size of the business, its history and volume of operations, some due diligence reviews may require more time than others. It is also essential to clearly define the most material areas of the business and focus the attention of advisers on them.
7. Issues in Domestic Offerings
In times when international capital markets are still closed, the market for Ukrainian domestic offerings is something Ukrainian businesses start turning their attention to. Doing a domestic offering deal may throw up issues that do not normally arise in deals abroad. In the absence of the concept of trustees in Ukrainian law, such matters as the organisation of decision-making among holders of securities, taking security and others come to the fore. However, with some careful preparation these issues can be manageable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.