After the introduction of a mandatory rating by the issuer of shares in January, new applications for conducting emissions are not being submitted to the State Securities and Exchange Commission. This is the way in which companies are protesting an additional stealth tax on the procedure of attracting investments
The SSEC has come up with a totally unorthodox way of bringing companies in need of investments together with potential investors. From now on, companies attracting private capital through the emission of shares will have to receive a mandatory rating of such an emission. The SSEC says that in this way potential investors will finally have an independent assessment of the liquidity and financial standing of share issuers and their securities. In addition to this, investors will be able to learn about the real value of such instruments, assess the risk of their investments and the adequacy of earned profits.
The exchange commission also offered serious arguments for the introduction of mandatory rating of separate groups of enterprises, namely, those in which the state owns shares and that are not subject to privatization and monopolies.
Undeniably the state as a regulator and so far still a large player on the stock market must be aware of the current state and liquidity of its property. Permanent monitoring or the financial standing of companies dominating the market can protect their counteragents form unpleasant situation associated with potential bankruptcy of partner-monopolists.
At first glance, the list of cases in which the services of a rating agency are needed seems rather short. In truth, however, the latest innovation will affect the majority of companies. According to State Property Fund Vice Chairman Yevhen Hryhorenko, 50% of all facilities in Ukraine are still either state or our consequences. Moreover, issuers will profit form such a rating. In future, they will be able to gain access to cheaper financial resources", says Credit-Rating agency director Stanislav Dubko.
However, the majority of experts do not sound as enthusiastic about this novelty on financial markets. In their opinion, the proposed procedure does not correspond to the key requirements. The rating could improve the transparency of the issuer's activity only in the event it is required to provide full information behind the rating. "If you look at the press release on the latest rating by Credit-Rating agency, there are many words and few figures. On the basis of this information, no investor could make of this information, no investor could make a rational decision about purchasing bonds. The way credit rating are done for bond issuers does not bring the Ukranian market closer to transparency", says UkrSotsBAnk Securities Department Head Erik Naiman.
The analysts also complain, that in essence, the companies willing to attract investments will have to pay another so-called "hidden tax" in the form of a payment for the ratings. Oleksandr Pecherytsyn,Analitical Studies Department Director of the closed JSC Alfa Bank (Kyiv) explained, "The SSEC decision on introducing the mandatory rating of issuers is holding back development of the lending market in the country, since it will be difficult for many issuers to pay for the services of rating agency (a minimum of Hr 54.000-KW)."
The fears of financial experts are also justified by the fact that the SSEC decided to give the sole right to officially access the financial state of companies to Credit-Rating, which in this situation can manipulate the prices of its services any way it wants. Bankers believe that medium and small enterprises will be the first ones to abandon the issuing of bonds, as they simply will not be able to bear such expenses. This, in turn, will reduce the volumes of the corporate bonds market and put a dent in the independently assess liquidity when purchasing securities in a credit portfolio. In this case, now banks will lose the possibility of efficiently planning their financial flows when conducting such operations.
"Since the day corresponding SSEC decision came into force, we have not received a single application for the state Chief of the SSEC Corporate Finance Department Andriy Borosenko. Most likely, everybody is waiting for the commission to cancel its decision. In any case, the SSEC is already prepared to make concessions. At the moment, it is considering the possibility of exempting companies that have international ratings from this new mandatory rating.
By Olena Prystavkina
Kyiv Weekly
February 4-11,2005
