It is common knowledge that a country’s stock market reflects the state of affairs in its economy, Artem Eyskov writes on www.banki.ru. If stock indices are in steady growth, one can say that economy is in good health as well. If they go down you have obvious problems on your hands. Of course, you have to make a lot of allowances for investors’ hysterics and euphoria, capital flows and other factors. After all, you are not supposed to rely on the Russian Statistics Agency alone. However, all is not so simple.
That existing indices actually do not show anything sane may be a subject for a separate discussion. But even if we admit that they reflect the activities on the Russian stock market (which is far from being so) it would be utterly ridiculous to say that the stock market reflects in turn a real state of affairs in the economy.
During the last three months the pace-setting Moscow Central Stock Exchange transacted shares issued by 271 companies. It is not a trifling amount, one should say, and investors apparently had something to choose from. However, more than 90% of the turnover was locked on 11 types of securities and more than 80% was tied to seven papers. And 50% of the turnover was taken up by only two types of securities – by ordinary shares of Sberbank and Gazprom. It means that 261 types of shares out of 271 as a matter of fact appear to be stock-exchange trash messed around only by aesthetes and insiders. Believe it or not, but one does not know even the names of the overwhelming number of companies proudly representing the Russian stock market.
Therefore it is much more interesting to cast a look at corporations which are absent on the stock market. Certainly, we do not mean here thousands of small joint-stock companies operating at a local scale or the “back bones” of the Russian business whose shares are not available to rank-and-file investors for various reasons. These companies are not present in indices and their shares are not quoted and no one knows for certain those monsters’ capitalization (total value). It is only possible to say that it amounts to many billions of rubles, or in other words the capitalization of the Russian business "hidden" from investors reaches tens of percent from the current "open" capitalization (about 20 trillion rubles).
The “latent” companies can be conventionally divided into two big groups: wholly state-owned and belonging to small groups of investors. Naturally, in the first case we may speak only about those joint-stock companies which can easily exist in a "commercial" mode - they can go in for IPO, their shares could be traded at stock-exchanges without any damage to national security or state interests, whatever is meant by this strange term.
You may judge for yourself. Pochta Rossii (Russian Post), a federal state unitary enterprise, employs about 400 thousand workers generating about 90 billion rubles of sales proceeds in a year. A more competent approach could result in a considerably reduced previous figure while the latter figure could as well be considerably increased. Capitalization of such a company would be comparable with the capitalization of Severstal, VTB or MTS. The example of such transformation is before your eyes. Germany’s postal service turned private has capitalized around 15 billion euros with a number of employees just a bit higher.
An even larger company which is not present on the Russian stock market, but influencing the life of the entire nation and its economy, is Russian Railways. It has more than 1 million employees, more than 1 trillion rubles of annual sales proceeds and a huge amount of property. I will not be surprised if Russian Railways, should it turn private, would become the largest company in Russia having displaced Gazprom from this position. At least the second place it is guaranteed for sure.
The Russian Technologies mega-holding may also be attributed to the group of state-owned companies which are not taken into account by both investors and indices. Yes, some of the companies belonging to this holding did issue shares which are being traded up to now. But – only some of them. Inside this holding there are hidden hundreds of corporations whose market value is not reflected in any way on the state of stock-exchange barometers.
ALROSA may well be added to the above mentioned companies together with Rosatom, strange as it may seem. Despite all their “strategic” significance for the state, they could also be traded at stock exchanges, even in case the controlling stock were held by the state.
Finally, there come state banks and “quasi banks.” First of all it is possible to mention the largest and purely state-owned financial companies - Rosselhozbank and VEB. The latter is not actually a bank, but with some diligence it is also possible to put it on a stock exchange selecting from all its numerous functions those "commercial" and leaving the rest to some government agency.
Besides the largest state-owned companies there are corporations which are formally private but belonging to a limited group of owners and operating outside the stock market. It is of interest that the largest of them are banks (with rare exception). Just have a look at the top list of Russian banks, and you will understand that their majority are just the same “private shops.” Alpha Bank, Russia Bank together with Gazprombank which it controls, Uralsib, Promsvyazbank and many others. Even without subsidiaries of foreign companies there you have quite a big community. Taking their cumulative net wealth and potential capitalization they are quite comparable with Sberbank (though perhaps they are still slightly smaller).
So, as we see, in both groups of "latent" companies a solid share is taken by banking and quasi-banking agencies. What would a Moscow Interbank Stock Exchange index be if it took into account such companies as Pochta Rossii and Gazprombank and not Volga Telecom and Raspadskaya? Or Russian Railways and Promsvyazbank instead of OGK-3 and Aeroflot? This is something which nobody knows. Still it would be of interest to have a look at such a market.
