Freedom Holding Corp (FRHC)

[Quintessence]

Russian broker revealed to American investors

Shares of Freedom Holding started trading on NASDAQ

https://www.kommersant.ru/doc/4126485

Freedom Holding Corp., the parent company of the Russian broker Freedom Finance, on Tuesday received an official listing on the NASDAQ stock exchange, becoming the first investment company in the post-Soviet space on the site. The listing will allow free purchase of shares in the company to retail and institutional investors from the United States. Despite the close attention from regulators, the sanctions did not affect the process, the company said.

The placement will affect shares of Freedom Holding, already traded on the US OTCQX OTC platform, no additional issue is planned, said Timur Turlov, executive director of the holding (owns 73% of the shares). Freedom Finance provides services on the St. Petersburg and Moscow exchanges (the latter is among the ten leading operators by the number of customers), and also helps Russian customers acquire securities traded on American trading floors. In addition to a Russian broker and a bank of the same name, the holding structure includes a Kazakhstani investment company, as well as Ukrainian, Uzbek, Cypriot and German units, the headquarters of the holding is located in Almaty.

In anticipation of the placement on NASDAQ, the holding's capitalization was estimated at approximately $ 800 million, according to the results of the last quarter, the company reported net profit of $ 8.2 million (about 50% of the profit came from the Russian division, 40% from Kazakhstan). Following the placement on NASDAQ, the company's shares will also be listed on the St. Petersburg Stock Exchange.

According to Mr. Turlov, the direct preparation process for obtaining the status of a public company in the United States took about three years and required legal structuring and corporate governance reform to increase transparency in accordance with the requirements of the Securities Commission. For this, in particular, the assets of Freedom Finance were transferred to the Nevada-registered former oil company BMB Munai, which already had public status, after which it changed its name to Freedom Holding Corp.
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“It is expensive to be a public company in the USA,” Timur Turlov admitted. According to him, the company was faced with a large volume of inspections and close attention of regulators. “Many authorities are trying to understand the reputational risk that may be associated with a shareholder; they are trying to study who our customers are, who our investors are, especially given the risks associated with the region, as well as all companies that are associated with the shareholder but are not included in the public holding, ”he said.

At the same time, according to Mr. Turlov, the sharp aggravation of relations between Russia and the United States, which occurred after the decision to enter the US stock market, was practically not reflected in the process. “The segment we are in is little affected by sanctions. Our clients are not interested in purchasing instruments that are subject to sanctions; they themselves are not affected by sanctions. We are doing a retail, fairly calm business, ”he said.
The lack of affiliation with large financial groups from Russia and Kazakhstan played into the hands of the company, Mr. Turlov is sure.

“We remained an independent player, found our niche in the era of bank hospitalism, we had to push our competitors elbows more actively, but only because of this our public history here became possible,” he emphasized.

The recent incident, when an employee of the Russian subsidiary of Freedom Finance suggested offering Crimean-registered clients to sell shares of American companies (Vedomosti wrote about this) may be due to some sanctioned nervousness against the news of listing.

The holding expects that the listing, which removes restrictions for retail and institutional investors, will contribute to increased liquidity and trading volume amid growing interest in the CIS region, where the financial services sector is experiencing rapid growth. “In Kazakhstan, six to seven years ago, there were ten times fewer investors than now. In Russia alone, over the past 18 months, more than 1 million accounts have been opened on the Moscow Exchange. Considering that there are only about 3 million of such accounts, this is an indication of explosive growth in investments in securities in the region, ”Timur Turlov believes.

At the same time, the market potential is very large: only 2% of the wealth of households in the region is invested in securities against 78% in the United States or 14% in Turkey. The bill on investor qualifications currently being discussed in Russia will not have a significant impact on the company's business, the holding said, especially in light of the latest softening of the Central Bank’s rhetoric (see Kommersant on October 14).

However, the first day of trading on NASDAQ was not too successful for Freedom Holding: the company's shares, having opened in positive territory, lost 3.89% by the close. The previous placement of the Russian company on the site took place in May, when the IPO there was held by HeadHunter.