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The Sunday Times: Investors are right to be wary of Russia Agenda

June 3, 2007
John Waples, Business Editor

THE impending $30 billion (£15 billion) flotation of Rusal will be the biggest gauge yet of institutional appetite for Russian companies – and it couldn’t come at a more testing time.

On a political and business level, deep distrust has grown among western countries – particularly in America – over the Kremlin’s creeping repatriation of some of its major resources. First with Shell and now with BP, President Vladimir Putin’s desire to put assets back under state control has understandably made investors nervous about their exposure to Russian resource stocks.

Now a group of oligarchs wants to list Rusal, the world’s biggest aluminium company, on the London Stock Exchange. Unlike Rosneft, the Russian oil giant that raised $11 billion last year, this is not a global depositary receipt, but a main listing. In other words, Rusal will move its headquarters here and will have to comply with all the onerous reporting standards of a full listing.

Investors will be asking if capitalism is a one-way ticket. Rusal wants to take advantage of London’s huge liquid pool of institutional capital, but its country of origin appears to play by a different set of rules. Rusal is fundamentally a good company with a prized collection of assets, but it may find itself dragged into a political game.

It could reveal how far Russia is prepared to embrace western capitalism. With one hand it wants to raid our institutions and with the other it wants to seize back resource assets that had passed into control of foreign companies. At the same time Putin has recently been using language reminiscent of the Cold War.

President George Bush is attempting to repair his country’s deteriorating relationship with Russia by inviting Putin to visit the family compound in Kennebunkport, Maine, next month.

It’s a move in the right direction but the business community needs a clear guide from Putin about his policies on overseas investment.

A number of investment banks and western companies have set up shop in Russia, but they remain sceptical over their long-term prospects.

Rusal is not the only company from the former Soviet Union that wants to raise money in London. So, too, does Ferrexpo, which is looking to raise £250m, which would make it Ukraine’s first ore mining company to be listed on our stock exchange. There is some chatter that this company is struggling to win the confidence of potential investors.

However, it would be wrong to bet against Rusal’s float succeeding. Investors rarely turn away money-making opportunities. Rosneft had confiscated its biggest asset from a jailed oligarch but even that fell within the City’s moral compass. However, against a backdrop of worsening relations with Russia, the Rusal float may trigger a much wider debate.

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