Russia urged companies to delist their shares from overseas stock exchanges and trade in Moscow in an effort to safeguard them as international sanctions mount against the country after its takeover of Crimea.
“This is a question of economic security,” First Deputy Prime Minister Igor Shuvalov told reporters after a government meeting near Moscow today. Speaking later in a telephone interview, he said the move isn't mandatory and that companies should make independent decisions.
The U.S. and Europe are threatening to step up economic sanctions against Russia following President Vladimir Putin's move to annex Crimea from Ukraine last month. Higher borrowing costs led the government to scrap ruble-bond auctions in five of the last six weeks. Since the incursion into the Black Sea peninsula on March 1, investors turned to offshore equity trading, with U.K. volume growing faster than in Moscow.
Companies including Yandex NV, VimpelCom Ltd., and Mail.ru Group Ltd. are only traded on exchanges abroad while OAO Lukoil, OAO Gazprom, and OAO Sberbank, among others, have shares listed in Moscow and London. The Micex rose 0.2 percent at 1,352.33 in Moscow, and has lost 6.4 percent since Feb. 28. The Bloomberg index of the biggest Russian stocks traded in New York gained 0.9 percent at 1:28 p.m. in New York, and the Russia Depositary Index of London shares fell 0.2 percent.
The Russian government is creating “attractive” conditions for companies that decide to re-register on OAO Moscow Exchange, Shuvalov said. The country will push on with plans to sell state-owned assets on the stock exchange, he said.
“The question is whether listed companies will have enough liquidity on the Moscow Exchange and new ones will be able to raise money at good cost levels,” Jack Arnoff, a partner at Elbrus Capital Partners in London, said by email today. “Russia needs to make further progress on shareholder rights in order to attract business to the local exchange; this is the main issue.”
With foreign investors holding 70 percent of Russia's stock free-float, a move away from Western markets would stoke a “further selloff,” according to Elena Loven, who helps manage more than 1 billion euros ($1.4 billion) in Russian stocks at Swedbank Robur in Stockholm.
“You are just moving away from your 'natural' investor base,” Loven said by email today. “So I can't see anything positive in that for the broader equity market.”
Gazprom, Mail.ru
Matthew Hammond, managing director of London-listed Mail.ru, declined to comment on Shuvalov's proposal today. Hammond said in February that Mail.ru was planning a Moscow listing soon for employees' benefit and index inclusion.
A Gazprom press service official, who asked not to be identified due to company policy, said the company had heard the proposal, declining to elaborate. OAO TransContainer's representative said that the company doesn't plan to delist from the London Stock Exchange.
OAO Surgutneftegas spokesman Alexey Artemnenko declined to comment by phone. Lukoil's press service declined to comment by email. Spokesmen from OAO Severstal, Polymetal International Plc, OAO Uralkali, Evraz Plc, OAO Mechel, OAO Rosneft, and Polyus Gold International Ltd. declined to comment.
“The capital market is becoming more complicated and more closed to Russian companies,” Shuvalov said. “This is already felt by our exporters and those who borrowed abroad.”
Shares of London Stock Exchange Group Plc dropped 2.2 percent after Shuvalov's comments. LSE said it has 68 Russian companies trading on its exchange. William Briganti, a spokesman for Nasdaq OMX Group Inc., declined to comment, as did Sara Rich of the New York Stock Exchange.
Yandex spokeswoman Asya Melkumova declined to comment. Russia's largest Internet company said in February that its board supports a Moscow listing.
“We already have an optimal structure with 10 percent shares traded in Moscow and about 35 percent traded abroad,” said Elena Kokhanovskaya on behalf of OAO Mobile TeleSystems. She declined to comment on the government proposals.
OAO Novolipetsk Steel's spokesman Sergey Babichenko said the company has had a Moscow listing since 2004 and declined to comment on the delisting option. VimpelCom's spokesman Artem Minaev said by email that Russia-based company OAO VimpelCom delisted from the New York Stock Exchange in 2010 while the Nasdaq listing was done by an Amsterdam-based company.
CTC Media Inc.'s spokesman who declined to be named said by email the company is closely watching the market situation and the Russian government's legislative initiatives, declining to comment on concrete plans.
'Powerful Stimulus'
The conflict in Ukraine has damped efforts by the Moscow Exchange to attract traders, including aligning the settlement system with international markets and extending trading hours. Trading volume in 10 of the country's biggest stocks was 46 percent higher in the U.K. than in Moscow today, according to data compiled by Bloomberg. That gap had vanished before Putin began taking Crimea from Ukraine.
The Moscow Exchange is ready for “large-scale” transactions and has the required infrastructure, Andrey Braginskiy, a spokesman for the bourse, said by email today.
“Carrying out Russia's privatization program through local share listings on the Moscow Exchange can serve as a powerful stimulus to further develop the Russian equity markets,” he said.
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