Having trouble sleeping lately?
Here’s something which may help: Pick-up a copy of the MegaFon IPO prospectus that was published this week.
When I say ‘pick-up’, the prospectus, I am not talking about a casual endeavour either; it’s 360 odd pages (of pretty close type) and a fair old weight I would imagine, if you’re trying to prop it on your knees in bed.
The serious point in all of this is that the prospectus is what we laughably refer to as a marketing document. An instrument geared to help sell. Yet from a sales point of view, it’s about as attractive as making Apple sell new ipads by requiring them to be wrapped in stale fish.
To what end I wonder? The answer is supposed to be to do with investor protection. So let’s look at that. The MegaFon prospectus contains 48 pages of specific ‘Risk Factors’. Some of these are the usual guff – long discourses on how the business faces, “intense competition” and how, “any failure to keep pace with technological changes and evolving industry standards could harm [MegaFon’s] competitive position.”
Other Risk Factors are at the slightly more troubling end of the spectrum – concerns that the rule of law in Russia doesn’t apply as, “Governmental authorities have” [been known to exercise] “their discretionary powers unlawfully or arbitrarily.”
In October, the float was delayed when Goldman Sachs quit as a key bookrunner on the deal, citing concern’s over MegaFon’s governance structure. Personally, I would like to have seen a couple of paragraphs in the prospectus amongst the myriad Risk Factors explaining in greater depth the exact nature of Goldman’s concerns. If it ain’t good enough for Goldman, I wonder why it should be good enough for anyone else.
But all that is by the by. The frankly astonishing thing is that amongst all the Kafkaesque flim-flam that is set out in the Risk Factors, on pages 33 and 34 we finally get to the heart of the matter. The revelation that: “Allegations and/or findings of corruption and money-laundering against persons linked or alleged to have been linked with MegaFon in the past could adversely affect [MegaFon’s] reputation, which in turn could result in a reduction in the value of the Securities.”
Do disclosures like this really enable an investor to make a reasonably informed assessment of the risks involved in investing?
Laws have required the bloated contents of this mighty tome that is the MegaFon prospectus. Thousands of man-hours and huge costs were no doubt expended on producing it, and yet at the end of this rigorous and exhausting process we have disclosures which surely ought to have made our august regulators pause for more than a little thought and questioned whether this entity was in fact suitable for listing on, and the imprimatur of, one of the World’s leading stock markets.