VALUATION Corp. Provides Securities Valuation Services in Moscow and Russian Regions
According to the definition given in Article 142 of the Civil Code of the Russian Federation:
“Security is a document, issued with all mandatory details present and in compliance with the established form, certifying property rights, the exercise or transfer of which is possible only upon presentation.”
So, the Russian law states that securities are documents (could be traditional paper documents or e-documents) certifying property rights, therefore valuation of a security means appraisal of the property rights that this document provides to its owner.
Depending on the type of property rights guaranteed, all securities can be divided into two main categories:
- debt securities – confirm rights to receive money that must be repaid. Debt securities differ mainly by rules set by applicable laws and agreements that determine how and when the borrowed money and interest must be paid out. Examples of debt securities are bonds (both government and corporate), promissory notes, bills of exchange. There are also derivative debt securities – like collateralized debt obligations (CDOs) and collateralized mortgage obligations (CMOs).
- equity securities – confirm property rights in legal entities (companies, investment funds, trusts or partnerships). Well known examples of equity securities are shares in company’s capital stock (both common and preferred) and shares in the investment funds. Equity securities give the owner some degree of control over the issuing entity, as well as the right to share its profit. There are also derivative equity securities – like forwards, futures, options which using stocks as the underlying asset.
According to the established financial practice and Russian law, securities can be issued by different entities:
- government and municipal bodies - most often issue bonds, but also able to issue promissory notes;
- business legal entities - depending on their legal status can issue all kinds of securities - stocks, bonds, promissory notes, bills of exchange, etc.;
- private individuals - can issue promissory notes.
Securities on the Russian financial market are mainly represented by stocks, bonds, promissory notes and shares in investment funds. With these types of securities two main tasks of financing the economy are solved: attracting investment capital and attracting borrowed funds.
Futures, options and other derivatives are not that widely used in the Russian financial system.
According to our practice of valuing securities, the fair market value is determined in most cases. The market value of a security is the most probable price at which it can be sold on the open and competitive market.
The market value of a security should not be confused with its nominal (face) value - these are completely different things. The security’s nominal value is either the total amount of the obligation for debt securities, or initial value of a share in company’s capital stock set by the issuing company, while the market value is basically a current price of the security on financial market. The nominal and market values of the same security may differ dramatically.
When using a valuation report on securities it is highly advisable to look at what type of value was determined and as of what date. The value determined in the report may quickly become outdated and may not reflect the current situation on financial market, where the value of the securities can change very quickly.
Many situations related to the legal circulation of securities require an independent and professional valuation of securities.
For example, Russian law requires mandatory independent valuation in some particular situations such as:
- transfer of the securities as non-monetary contribution to the charter fund (shareholders’ capital) of a Russian legal entity;
- buyback of stocks by joint stock company from its shareholders;
- inheritance notary procedure;
- transfer of securities owned by the federal state or municipalities;
- litigations involving property.
In some other situations independent valuation of securities, though not required by law, is performed based on client’s requirement to have an independent professional opinion on the value of the subject securities when:
- making a purchase or sale decision;
- using securities as collateral for a loan;
- revaluating assets for corporate accounting purposes;
Over the course of more than 20 years of doing business as independent valuers in Russia we have accumulated extensive knowledge in valuation of virtually all types of securities. According to our experience, securities the most often clients require valuation of are stocks and promissory notes. For more details on their valuation procedure, please visit the following sections:
For more information on our services regarding securities valuation in Russia, please contact us.
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