Russian companies attempting to list abroad will have to do so under “sub-optimal” conditions due to punitive measures recently imposed by Moscow’s regulator, western bankers have warned. While the ruling is meant to help the Kremlin create an attractive local stock market, bankers said the changes would push companies to re-register offshore in an attempt to escape both Moscow and the restrictions. The ruling, which limits companies to issuing no more than 25 per cent of their equity abroad – in many cases substantially less – comes at a bad time for Russian issuers, who are preparing to sell up to $10bn in offerings before the end of the year, according to UralSib, the Moscow investment bank.
Although regulators had previously reduced the issuance limit from 50 per cent to 35 per cent, bankers have taken particular offence at the new change, which they said was “detrimental”, “ill-conceived” and “one of the worst decisions” for Russia’s stock market. “[As a regulator] you are massively limiting the ability of your domestic companies to access financial markets and thereby limiting the competitiveness of your own economy,” said Irackly Mtibelishvily, chairman of banking for Citigroup in Russia. “When the regulator wakes up at this time next year and several Russian businesses have done equity deals listing offshore parents [thereby opting out of the Russian jurisdiction], they will have to take note.”
Federal Financial Markets Service, Russia’s market regulator, said it was no longer commenting on the changes to the listing restrictions. Last year it agreed to raise the maximum issuance limit from 15 per cent to 25 per cent after receiving a letter of complaint from western banks, including Credit Suisse, Deutsche Bank and Goldman Sachs. Bankers not involved in sending the letter said exemption rules to the limits, which only apply to certain companies, did little to address the regulation’s overall weaknesses and Moscow’s increasingly hard-line stance towards companies listing abroad.
They said Russian companies coming to market for the first time would face illiquidity, while investors would be forced to pay even higher premiums for depositary receipts – certificates allowing the shares of foreign companies to be traded. Currently, depositary receipts can be up to 50 per cent more expensive than a company’s ordinary shares, making it hard for Russian companies to do second public offerings abroad because of the discrepancy in valuations.
Although the regulator has taken the first steps towards improving Russia’s market infrastructure and is working to create a central depositary clearing house and the country’s first insider trading law, bankers said it would still be years before foreigners felt comfortable investing on Moscow’s exchanges. “If you’re going to have people interested in buying and holding ordinary shares and not [depositary receipts], you need to have a transparent and open market that’s reliable,” one western banker said.