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Compensation Stock
// Shares of foreign companies will lead to Russian stock exchanges
Russian companies registered abroad will be allowed to place their shares on Russia’s trading floors already by mid-2008. Russia’s Federal Financial Markets Service (FSFR) has coordinated a corresponding agreement with ministries and federal agencies. Largest companies which might use the new opportunity, -- Evraz Group, Integra Group, X5 Retail Group, IBS, -- declare their intention to hold IPOs on Russia’s MICEX and RTS.
Federal Financial Markets Service (FSFR) head Vladimir Milovidov said on Wednesday that the draft bill on foreign shares’ direct access to Russian trading floors will be introduced to the government within a month. “The bill has already been approved by the Finance Ministry and the Ministry of Economic Development and Trade. FSFR now waits for a formal approval with Central Bank visas,” said Milovidov. FSFR first spoke of the bill back in August. “About 5 large Russian companies legally registered abroad have already expressed interest in the draft law,” added Milovidov. The official said these are first-echelon companies, “whose appearance on the Russian market will be a landmark event”. However, Milovidov refrained from naming the companies.
There are several companies working in Russia and keeping their assets inside the country, but legally registered abroad. Their shares are placed just on foreign stock exchanges. For instance, AFI Development, Evraz, Rambler Media, Integra and X5 trade on the London Stock Exchange, while IBS -- on Deutsche Boerse. These companies are the most likely candidates among those whose shares might come to Russia’s trading floors. Most of the above-mentioned companies confirmed they are interested in the new law. “It is good that an instrument like that will appear. If that opportunity arises, we will gladly use it,” said Igor Solomon, corporate issues director in AFI Development. Likewise, IBS said it is interested in emitting shares in Russia. “We are attentively watching the corresponding laws develop,” said Dmitry Ivanov, IBS investor relations director.
Before there appeared legislative initiatives for granting direct access to Russia’s market for foreign shares, the companies had planned to issue Russian depositary receipts (RDR). X5 was considered a likely pioneer in that sphere. “We have been working in that direction since spring,” said X5 Retail Group’s finance director Vitaly Podolsky. The company has recently postponed SPO, which helped it focus on launching the RDR program, as Podolsky said. Integra said it also hopes to issue RDR. “We are now actively discussing the possibility of issuing RDR, and have already talked to potential organizers,” said Integra’s investor relations director Andrei Machanskis.
However, issuers might encounter difficulties with RDR. “Legally and technically, RDR issuing is more complicated and costly, because a Russian depositary then actually assumes the right to register the securities issue of a foreign country,” said MDM Bank’s board chairman Oleg Vyugin. Inteko president’s advisor Alexei Chalenko believes the lack of the sole depositary in Russia might become the primary obstacle on the RDR project’s way. “RDR issuing might be limited by restrictions set for each depositary,” the expert said.
FSFR also allows that, after analyzing the new law, the companies might choose to place local shares in Russia, instead of RDR. “Issuers interested in placing their shares on our market are Russian companies in foreign disguise. Their assets are here. So, it is simpler and more profitable for them to place their shares in Russia directly,” said Milovidov.
However, officials preferred leaving both options for the companies: both the direct issuing of shares, and the RDR placing. “It is a large share of business which could replenish Russia’s financial market, diversifying the assets presented there,” said Milovidov. Moreover, the official believes that issuing local shares by foreign companies will increase competition between Russian and Western trading floors. “And the competition is quite tough now,” added Milovidov.
Thus, many companies are considering both variants now. “We will decide which way to choose when the legal base is ready,” said Irina Kibina, Evraz Group’s vice president for corporate and investor relations. X5 admits that direct listing is likely as well. “It is a purely technical choice between the two options. The main goal for us it to expand our investors base,” said Podolsky. Integra has the same stand. “The main goal is to increase liquidity and to enter Russia’s financial market, whichever way,” said Machanskis.
Nailya Asker-zade
Foreign companies with Russian assets which plan to place shares in Russia
Name IPO date Stock exchange Capitalization ($ billion) Changes since the year’s start (%) Income of 2006 ($ billion) Operational profit of 2006 ($ billion) Net profit of 2006 ($ billion)
X5 Retail Group N.V. May 6, 2005 LSE 8.12 +41.6 2.803 0.168 0.084
Evraz Group June 2, 2005 LSE 21.68 +144.5 8.292 2.348 1.459
Rambler Media June 15, 2005 AIM 0.54 +5.9 0.031 0.000 0.021
Integra Group February 21, 2007 LSE 2.24 – 0.547 0.015 -0.020
Data by Reuters.
All the Article in Russian as of Oct. 04, 2007
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