Starting April 12, everyone in Ukraine could buy at least one of 500,000 shares of Ukrainian soccer club Veres for $3.6 each.
Veres will become the first-ever soccer club in Ukraine funded by fans rather than big businessmen or oligarchs.
Shareholders won’t get any dividends — Veres plans to spend money on growth. But the biggest investors will have a say during board meetings.
In Europe, many soccer clubs trade their shares publicly: the hugely popular British Manchester United, Italian Juventus (current club of star Cristiano Ronaldo) and German Borussia Dortmund are among the teams that raised millions of dollars through initial public offerings, or IPOs.
But no one expected that a little-known soccer club from Rivne, a city of nearly 250,000 people, 350 kilometers west of Kyiv, will do the same.
Many investors and industry experts still question the move, according to Igor Mazepa, chief executive of Concorde Capital, a Ukrainian investment firm that’s helping Veres prepare for the IPO.
The local stock market has been degrading for years, lacking money, regulations and state support, and it will be difficult for a small company like Veres to revive it.
What Veres can do is to set an example for others willing to start trading on Ukraine’s stock exchanges, according to Ruslan Magomedov, chairman of the commission that regulates national securities and stock exchange.
This case will illustrate that Ukraine can handle a procedure as complicated as an IPO, Magomedov said.
Far-fetched profit
With the help of public investors, Veres expects to raise $1.8 million by March 1, 2022. The company wants to invest most of this money in the construction of training centers for its players in Rivne, according to Ivan Nadein, the club’s president and main shareholder.
To invest in Veres, a wannabe shareholder first has to open a brokerage account with one of Ukraine’s five local exchange platforms called PFTS where Veres plans to sell its stocks.
It costs up to $72 to enter the Ukrainian stock market, but given that it’s the first IPO and Veres doesn’t want its investors to lose money, it’s agreed that Concorde Capital will cover most of the additional expenses, including a broker’s commission.
For Concorde Capital, it is a chance to “pave the way” for more future IPOs and a bigger clientele, Mazepa said.
Nadein, in turn, wants to make Veres a “truly national club,” responsible to its fans rather than controversial oligarchs as is usually the case in Ukraine. Ukraine’s biggest soccer clubs Dynamo Kyiv and Shakhtar Donetsk, for example, are owned by oligarchs Igor Surkis and Rinat Akhmetov respectively.
Nadein owns over 70% of Veres. To retain control over the club’s decisions he will buy 60% of the shares once they are up for sale, which will cost him about $1 million. At least 40% will be sold to the public.
For him, IPO is an additional source of revenue in line with advertising, sponsorship and ticket sales.
Preparations
It took Veres nearly two years and at least $72,000 to prepare for the IPO. About 8% of the money raised through the IPO will have to be spent to cover these expenses.
Some experts said that it is not financially justified to put so much effort into the IPO given that the club won’t get much money. Veres may be using the IPO to improve the team’s image among investors and the public, according to economist Sergey Fursa.
Still, Veres expects that it will get some extra money to spend on improving the team, an investment that can help this club, which plays in Ukraine’s second-most important soccer league, enter the next stage — the Ukrainian Premier League.
Teams that play in the Premier League and do well there, including Dynamo Kyiv and Shakhtar Donetsk, have a higher valuation and attract more money from TV channels, sponsors and advertisers, Mazepa said.
Complicated process
The company needs to be attractive for investors to participate in the IPO, otherwise, it won’t raise enough money, according to Oleksiy Suhorukov, business development director at the Ukrainian Exchange.
Being publicly owned also means that the company has to disclose certain information about its owners, budget and revenue, so investors could trust it.
It changes how businesses work and communicate with their shareholders and customers, Suhorukov said. Once it wins the support of investors, a company has to justify the trust placed in it every day.
Many Ukrainian companies avoided IPOs because they thought they were expensive and complicated, according to Magomedov.
They remained private or started trading their shares on the foreign stock exchanges — in New York, Warsaw or London.
Local businesses went abroad to find wealthy investors and a regulated environment, Mazepa said.
If Ukraine had a safer and simpler stock market, firms could sell their shares locally and even receive higher market valuation than when they are traded abroad, he added.
Now Ukraine has a few potential IPO candidates, including the biggest telecom company Kyivstar, postal service Nova Poshta and private medical clinic Dobrobut, Mazepa said. The more large companies go public and enter the stock exchange, the more investors will be ready to give them money, according to Magomedov.
All investors need is certainty and simple tools to invest, such as a mobile app, like Robinhood in the U.S., that allows people to monitor and buy stocks online.
Mazepa said that Concorde Capital wants to spend $1 million to develop such an app in Ukraine.
New class of investors
Although an IPO is a new and complicated process for Ukrainians, Veres expects that local soccer fans and professional investors will support it.
It is a feasible goal because more Ukrainians have become interested in investing over the last year, said Oleksandr Paraschiy, head of research at Concorde Capital.
Mazepa said that the new class of investors that’s now growing in Ukraine has set its sights on the stock market because deposit rates in banks are decreasing (about 10% nowadays) and people who used to keep their money in banks earn less than they used to. Just in 2015, banks offered over 20% and higher annual deposit rates.
Ukrainians buy government bonds or securities of foreign companies to find additional financial instruments from which to profit, according to Paraschiy. He thinks that if there is a supply in the Ukrainian stock market, the demand will follow.
To date, the Ukrainian stock market has relied on government bonds, rather than corporate investment, Magomedov said. To change that, Ukraine needs more companies that sell their securities to show that the market is alive and working, according to Fursa.
That is why the market is excited that Veres is setting a precedent in Ukraine. Through its mistakes, the stock market will learn what it needs to avoid during future IPOs, according to Sukhrukov.
