Russian companies are in retreat from London’s stock market, stung by lackluster valuations and investors wary of geographical risk and poor corporate governance.
A London listing was seen as a mark of pride for many Russian corporations over the past decade, with 46 flotations and $69.4bn raised since 2005, according to data from Dealogic.
However, no new Russian companies have entered the London Stock Exchange since 2014 and just two have premium listings in the FTSE 250. PIK, the country’s largest housebuilder, this week announced it would delist from the LSE, the second Russian company to leave so far this year and the sixth in the past 18 months.
Seven years ago, with commodity prices high and western relations with Moscow warmer, a London listing was all the rage for Russian corporates keen to promote themselves as significant global operators and executives hungry to tap the City’s capital.
But a crash in oil prices and a recession at home has hurt valuations, sanctions against Moscow have undermined sentiment and many companies have struggled to shake off reputational worries and convince investors of their credibility.
Because of their history and the fact that many are focused on the energy, mining or commodity sectors, many of the large companies from Russia, Kazakhstan and other former Soviet Union territories are typically controlled by oligarchs or families sometimes reluctant to cede control to shareholders, and have relationships with governments that institutional investors are not accustomed to.
“The main reasons are not political, but company-specific issues. A London premium listing has its own rules, both formal and informal, and… represents a significant commitment from the company,” said Vitaly Nesis, chief executive of Polymetal, a Russia-focused gold and silver miner that has bucked the trend as compatriots have abandoned listings.
“Investor relations, corporate governance, the need to obey sustainable development rules — for many companies, not just Russian, these are too significant, or they do not see the long-term value of the investment required,” Mr Nesis told the Financial Times.
He said Polymetal is “fully committed” to its London listing.
Polymetal and Evraz, a steelmaker, are the only two large Russian companies with full listings in London, both with spots in the FTSE 250.
While 44 Russian corporates, including gas producer Gazprom and telecoms provider Megafon still have secondary listings of depositary receipts on the London market and a primary listing in Moscow, that has fallen from more than 67 in 2011.
“London still has a certain aura for Russian business owners, but we are seeing that many of them are not keen on the demands it poses,” said the Russia head of a big international bank. “Coming back to Moscow is easier.”
The shift back to Moscow, which has been encouraged by Russia’s government since western sanctions were imposed on the country after Moscow’s invasion and annexation of Crimea, has coincided with a rise in sentiment towards Russian debt and equity.
Most of the Russian companies that have walked away from London listings blamed low liquidity and valuations. But executives and company representatives note that many failed to build the relationships with investors needed to overcome a reputational discount that still is associated with companies from the wider region.
A decade ago, many miners from Russia and central Asia swarmed to London looking to cash in on valuations pumped up by record-high commodity prices.
But disaster stories such as Kazakh miner ENRC, which crashed out of the London market mired in scandal in 2013 after six years of delivering a minus 54 per cent total return to shareholders, are not an easy thing to forget for investors that had overlooked the company’s corporate governance standards and low free-float.
Mr Nesis said the current retreat from London will probably mean the direction of travel is one-way traffic.
“The likelihood of a premium relisting is very low. I think it will be difficult for companies to come back — investors have long memories,” he said.
“There may be attempts. But not a trend of reversing the direction.”
Polymetal said on Wednesday it would increase its dividend payout to 50 per cent of underlying net earnings, up from 30 per cent previously, on a semi-annual basis, a move Mr Nesis said was part of a strategy of increasing investor transparency.
“In terms of valuation, let’s be realistic…we lag behind our London-listed peers,” he said.
“Closing this gap is one of the objectives of our efforts. This gap, despite the objective geopolitical reality, will with time shrink as investors get more comfortable with the company.”