Patterns of Russian Companies’ Resilience: Paths toward Antifragility

Resilience of Russian companies and their antifragility were discussed at the round table organized by the School of Finance of the Faculty of Economic Sciences of HSE University. The participants spoke about the opportunities for raising capital in the domestic market, companies’ resilience amid a crisis and the vision of companies’ top managers for the current situation.

The academic supervisor of HSE University and initiator of the roundtable discussion Yaroslav Kuzminov made the introductory speech. According to him, the event was intended to sum up the experience of the companies which adapt to new reality. Such discussion may help Russian business to overcome challenges and enhance companies’ resilience. The reports presented at the roundtable discussion will assist in developing new recommendations according to which companies may act under sanctions and external pressure. Yaroslav Kuzminov enumerated several key challenges the Russian companies have faced. One of the main difficulties for business was changing availability of financial markets. The intermediate stage between the loss of the opportunity to raise capital in the Western markets and sufficient maturity of the national financial market generates a need for complex management of corporate resources. The second characteristic feature of the current situation is the increasingly larger role of budget funds which requires changes in multiple practices. The third feature is the need for a major reconstruction and optimization of IT infrastructure. Companies also have to seek the ways to enter new markets and overcome the isolation caused by the contractors they were accustomed to. Yaroslav Kuzminov said that the main threat is posed by a highly complex crisis in the labour market which the companies have yet to face. The head of the School of Finance, professor Irina Ivashkovskaya, the roundtable discussion moderator, managed to perform a large-scale study of the Russian market under present-day conditions, and it is necessary to branch out this activity depthward and broadwise.

Irina Ivashkovskaya also announced an upcoming publication of two books based on analysis results by the publishing house of HSE University and also spoke about a partnership with Tbank which will provide more information on companies. The associate professor at the School of Finance Sergei Grishunin presented a report on the project. He described the research of the Russian market applying the Altman’s Z-score which solves the problem of evaluating the inter-industry dynamics and its components. It provides an insight into financial resilience and direction of operations laying the basis for more effective solutions when managing the corporate resources. Analysis of reports published by over 4,000 companies showed that in 2022 resilience decreased moderately and as soon as the next year it strengthened slightly, however less than expected. The ratio of working capital to assets throughout 3 years remained approximately at the same level of 18% as was the case with return on assets which amounted to 12%. Nevertheless, in 2022 the leverage increased by 4% while asset turnover reduced by 8%. Dividends were also driven down. In 2023 these indicators grew but failed to reach the figures of 2021. The new crisis turned out to be more painful for the companies than the crisis of 2014-2015. More highly resilient companies found themselves in the “grey zone”. At the same time many businesses managed to maintain their positions in the market and even solidify them. First of all, they operate in pharmaceuticals, chemical industry and mechanical engineering. The things looked worse in the aviation industry, electric power engineering because their resilience diminished significantly. The tight monetary and credit policy as well as companies’ withdrawal from the Russian market changed the situation to a point: the threatened industries succeeded in improving their position to some extent. The authors of the research defined the strategies of enhancing financial resilience. They comprise the focus on formation of domestic demand, development of green technology, optimizing control over working capital and improvement of planning quality, obtaining government support and concessional financing. This will help to overcome challenges of our time and retain the market position.

Alexandre Abramov, professor at the School of Finance, spoke about the possibility of raising capital in the national market. At present the number of IPOs in the Russian market has grown significantly: in 2023 eight new companies were listed on the stock exchange, and in 2024 this figure might be 15 or even 20. The professor described the project which developed 6 indicators to evaluate the IPO market performance: underestimation of a company, i.e. the difference between the offering price and the closing share price on the first day of trading, average value of a transaction, share of the current IPO in the market value, share of privatization transactions, excess cumulative return on equity. As compared to 1996-2022, efficiency of present-time transactions enhanced significantly. Thus, in 2023 underestimation of securities amounted to 15% as distinct from 5% in the previous period. It was one of the lowest in the world. A high value of this indicator points to the fact that the company’s management evaluates its position rationally. The IPO share in the market also increased. However, the average value of a transaction decreased 10 times. Earlier the valuation of listed companies amounted to $600 mln, and now it is just $56 mln. In 2024 alarming signals emerged but the extent of IPO success in the current year will manifest itself only in several months. We have to preserve the achievements of 2023 and adjust the market management mechanisms.

The deputy head of the School of Finance Elena Makeeva continued the discussion about adaptation of Russian companies to changing financial markets. She presented the vision of top management for the present situation. The authors of the research conducted in-depth opinion polls of representatives of 26 companies from core industries: metallurgical, oil and gas, electric power, construction industries and many others. In 30% of cases they obtained the CEO’s opinion and in the rest 70% – talked to chief financial officers. Securities of many companies were also listed on foreign stock exchanges but after the crisis business was forced to seek for new financing sources. The external turbulence damaged transportation providers, metallurgical and machine-building companies most of all. They encountered challenges related to supply chain restructuring, cost escalation caused by cost-price inflation and added complexity of cross-border payments more often than others. Construction and electric power companies found themselves better positioned. They experienced almost no external pressure, and their major problem was inflation. In these circumstances the companies managed to adapt rapidly to new conditions: 68% proved able to recover their revenues within a year after the crisis began. In the opinion of management, in the first instance, they were able to cope with the situation due to their experience and understanding of the market. Some directors said that their economic education was essential for them. Representatives of the oil and gas industry, unlike other businesses, also considered their specialized education in the field of professional expertise to be the key factor. Many directors thought that their experience associated with other crises was also useful. As a measure of protection against sanctions management of many metallurgical, oil & gas and chemical companies were forced to withdraw from the board of directors. All interviewed oil & gas and metallurgical companies changed the ownership structure and delisted from foreign stock exchanges. Nevertheless, management of these companies feel optimistic about the future. Many of them are sure that the crisis provides new opportunities, and they know how to deal with challenges from the previous experience. In spite of the challenging environment business continues to make long-term financial plans for 3-5 years. Companies had to reconsider their financing sources. The main way of attracting capital for almost all interviewed companies was long-term loans granted by Russian banks and rouble bonds. Only metallurgical, transportation and chemical companies consider loans from foreign banks and Eurobonds as the financing source. Almost all managers view with some skepticism the possibility of attracting foreign funds in the new environment. On the basis of the polling results Elena Makeeva enumerated the steps towards flexibility in financial markets. They comprise a high share of sales in the domestic market, organizational flexibility which emerged as a result of the coronavirus crisis, preventive preparation for sanctions and restrictions, flexible investment planning and financial planning in advance.

The reports sparked heated debate. The participants discussed the ways around the isolation, possible practices to enhance attractiveness of the national financial market and the actions to be taken under sanctions. On a final note, Irina Ivashkovskaya emphasized the importance of the discussion and the possibility to use the new information when working with students. According to her, the School of Finance will continue in-depth study of the Russian market which may discover new ways to cope with external and internal challenges. 

Video of the roundtable discussion: 1^st session and 2^nd session