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Financial Times: Rushin’ for the exit

Published: December 22 2006 02:00 | Last updated: December 22 2006 02:00

Mikhail Khodorkovsky, once Russia’s richest man, faces his fourth Christmas behind bars. His fall, alongside the evisceration of his oil company, Yukos, marked a sea change in the Kremlin’s relationship with the oligarchs – the tycoons who secured control of the country’s biggest enterprises during the Yeltsin era.

Under President Vladimir Putin, the cast has changed somewhat, with many of Russia’s new oligarchs enjoying close ties with the Kremlin. Power and wealth remain concentrated in relatively few hands. The aggregate free float of the country’s top 10 stocks – 79 per cent of the market – is about a third. The free float for the 19 Russian companies that have listed $22bn of equity in London since the start of 2005 is about a fifth.

It is an astute time for the oligarchs to diversify away from the domestic scene. The economy may be booming but it remains heavily dependent on commodities. Political risk is rising, ahead of elections, with the Kremlin playing a bigger role, either directly or indirectly, in corporate affairs. There is no shortage of encouragement to tap new markets – investment banks’ estimated fees from Russia having risen from less than $100m in 2001 to more than $1.2bn this year, according to Dealogic.

Several Russian groups have enhanced their governance structures at the same time as obtaining foreign listings. That is welcome, but the treatment of these minority shareholders has yet to be tested by a political or economic crisis.

Foreign listings provide tycoons with a brand and an acquisition currency. Yet episodes such as the strong-arming of Royal Dutch Shell in Sakhalin and the Litvinenko affair make for poor PR. Already, attempts by the likes of Severstal and Sistema to cut deals with western companies have foundered on foreign investor and political opposition. Even if they are not languishing in Siberia, the remaining oligarchs may find breaking out of Russia a trickier business.

Copyright The Financial Times Limited 2006

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