04 February 2004 01:54
Russian executives become hooked on lure of London: The LSE has emerged as the exchange of choice for new listings, writes Astrid Wendlandt
The UK is where many Russian businessmen aspire to send their children to
school and where they would like to see their company, one day, graduate with
a London stock market listing.
Although Moscow's stock exchange is becoming increasingly sophisticated
and liquid, the list of Russian companies preparing to float in the west has
never been so long.
Many hope to capitalise on investors' growing appetite for Russian
equities, which, in spite of recent troubles surrounding oil groups Yukos and
Sibneft, have been some of the best performing since 2001.
United Heavy Machinery, or OMZ, the engineering group headed by the
charismatic Kakha Bendukidze, became the latest Russian company to list in
London in September and joined the ranks of Lukoil, Gazprom and Tatneft.
Potential candidates waiting at the gate include unlisted RusAl, the
world's second-largest aluminium producer, which Roman Abramovich, the
owner of Chelsea football club, used to run and co-own.
There are also Sual, or Siberian Ural Aluminium Holding; Kalina, one of
Russia's biggest cosmetics makers based in Ekaterinburg, in the Urals;
and Irkut, the maker of Sukhoi fighter jets. All are quoted in Russia.
Privately-owned retailers Perekriostok and Pyatyorochka are also considering
listings on the London Stock Exchange.
But some companies are more serious than others about making the move. Many
are keen to say they are preparing themselves for a London listing because
they know it sends the right message to western investors about corporate
governance and transparency but advisers warn it could be more noise than
action.
"A lot of Russian companies have said they plan to list in London but
they are a long way from it," says Marina Kagan, a partner at
Sharedvalue, an investor and media relations' advi sory firm. Ms Kagan
says Russian companies often underestimate the amount of time it takes to
restructure their operations before they introduce themselves to investors
abroad.
For a full listing in London, they need to compile three years of audited
accounts using international standards and have their shares quoted in Moscow
at least for six months.
As opposed to the main market where the amount of disclosure is fixed, on
Aim, London's junior market, it is decided by nominated advisers,
approved by the London Stock Exchange. It is up to them to decide how much
information is required.
However, while brokers conduct as much due diligence on their client as they
can, the fact remains that Aim is less regulated than the main market, which
makes it potentially more risky for investors.
Some investment bankers say Russian companies are daunted by the
Sarbanes-Oxley Act of the US, which requires chief executives and finance
directors of publicly-listed stocks to certify the accuracy of financial
information and treats mislead ing statements as a criminal offence.
"When Russian companies use accounting standards (US GAAP) that are not
home-grown, chances of some kind of error occurring are quite high,"
says Dominic Gualtieri, head of equities at Alfa Bank, Russia's biggest
private bank.
"The spectre of such potential criminal liability can make Russian
managers think twice about a listing in New York." On the other hand, he
says the act increases investors' confidence in the company.
Analysts say Russian businesses are advised to list where shares of rivals
are already trading, as comparisons make valuations easier.
On that basis, London will be more attractive for metal companies and New
York for technology and consumer goods stocks.
For example, analysts predict MegaFon, Russia's third-largest mobile
phone operator at the heart of a power struggle, will probably want to list
in New York where shares in competitors Mobile TeleSystems, Rostelecom and
Vimpel Communications are already trading.
Other Russian stocks listed in New York include the oil group Tatneft and the
drinks and dairy products group Wimm Bill Dann.
The choice of location also depends on the geographical spread of a
company's partners.
Irkut, for example, says London would be more appropriate than New York
because it does a lot of business in Europe, mainly with EADS, Airbus's
parent company.
Sergey Tsivilev, senior vice-president of Irkut, says he would use any
flotation to raise the company's international profile and get its
partners "to understand" its value.
The LSE and NYSE are likely to be busy trying to steal potential candidates
from each other over the next 12 months.
The LSE has just hired a Russian expert who frequently travels to Moscow to
meet companies while NYSE representatives regularly attend meetings of
companies with ambitions to list.
While preparation for many Russian companies has begun in earnest, there is
no urgency. Most will want to wait until the country's presidential
elections are over before they start thinking seriously about putting
together a prospectus.
[COMPANIES INTERNATIONAL] |
RUSSIA IN FACTS
