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Russian Stocks Fall First Time in 4 Days; VTB, Polyus Gold Drop
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=al42T3S_Mvk4
By Mark Sweetman
Aug. 4 (Bloomberg) -- Russian stocks fell for the first time in four days as VTB Group reported a first-quarter loss and OAO Polyus Gold followed bullion prices lower.
The 30-stock Micex Index slipped 1.3 percent to 1,084.92 at 10:51 a.m. in Moscow. The RTS Index added 0.1 percent to 1,069.51.
VTB, Russia’s second-largest bank, slumped as much as 4.5 percent and traded down 3.4 percent at 4.27 kopeks. The state- run bank had a net loss of 21.4 billion rubles ($689 million) after it increased provisions for bad loans. A kopek is a hundredth of a ruble.
Polyus Gold, the nation’s biggest producer of the precious metal, dropped 19.91 rubles, or 1.5 percent, to 1,269.50. Gold for immediate delivery fell 0.1 percent to $955.60 an ounce at 8:29 a.m. in Singapore.
Coal producer OAO Raspadskaya declined 1.5 rubles, or 1.8 percent, to 86 rubles.
To contact the reporter on this story: Mark Sweetman in Moscow msweetman@bloomberg.net
Last Updated: August 4, 2009 03:09 EDT
Obstacles Remain to Foreign Share Issues
http://www.themoscowtimes.com/article/600/42/380122.htm
04 August 2009By Oleg Nikishenkov / Special to The Moscow Times
From its peak in May to its nadir in October, the MICEX Index lost 74 percent of its value, one of the most significant market declines in the world.
Despite — or possibly because of — trade on the MICEX being halted more than 30 times to temper its decline, there was a massive flight of Russian securities trading abroad. At its low point in October, more than half of Russian securities were traded on the London Stock Exchange.
Local markets have since regained part of what was lost, and officials are working to see that it doesn’t happen again.
The government has recently introduced two key measures to boost liquidity and decrease volatility on the local markets, but critics say the extra restrictions may scare off foreign capital and hamper growth.
Last month, the Federal Service for Financial Markets increased restrictions on Russian companies listing shares abroad, effectively limiting initial public offerings on foreign markets to 5 percent of the company’s value. Firms with more liquid stock would be able to list up to 25 percent of their equity abroad.
Another government measure, which President Dmitry Medvedev signed into law in April, allows foreign companies to list ruble-denominated shares on Russian exchanges. It also boosts the role of Russian Depositary Receipts, or RDRs — securities traded on local exchanges but representing equity of a foreign company — as financial instruments.
The rules aim to keep domestic companies from running to foreign exchanges and retain equity from Russian majors on local exchanges. The financial markets service hopes that such measures will put to rest old fears among foreign investors and companies.
“Most risks that existed previously are gone,” Vladimir Milovidov, the service’s head, said in a recent interview. “It’s clear now that the level of risk locally is acceptable to the foreign community.”
Russia, because of its location and history, is well situated to become a regional financial center and offer direct competition to cities such as Dubai and Hong Kong, Milovidov said.
The goal of transforming Moscow into an international financial center began gaining traction shortly before the recession hit. While the crisis has put such plans on hold, officials from Mayor Yury Luzhkov to Medvedev have again started articulating their vision of Moscow as the next London.
But there is much work to be done.
The first half of 2009 saw more than $55 billion of Russian investment abroad, the markets service has said. By creating instruments such as RDRs, the service hopes to retain Russian capital now invested in foreign assets and Russian firms listed abroad. But this looks to be a difficult task — there has not yet been a single issue of RDRs.
In addition to attracting foreign firms, the regulator also hopes to attract back to domestic markets Russian firms that have listed abroad. Some of the country’s biggest firms have held IPOs abroad, depriving local markets of much-needed volume. In 2006, Rosneft held a multibillion-dollar IPO on the London Stock Exchange in what was then the sixth-largest initial share sale on record.
Some of the blue chips are pushing back against the proposed rule to limit listings abroad.
Sberbank is in negotiations with the markets service to lift the requirement that issuers of Global Depositary Receipts set aside part of the issue for the Russian market. The talks have led to speculation that the bank may be preparing a GDR issue.
And just as local majors aren’t thrilled about being forced to list domestically, convincing high-quality foreign firms to issue RDRs may be difficult.
“If Western economies are in bad shape, why would Russians buy foreign stock? And if the economic situation is better, why would foreign equity come here?” said James Beadle, chief strategist at Pilgrim Asset Management.
Small-cap equities were the most desirable foreign equities for private Russian investors, he said, but for most investors buying abroad is too expensive a procedure.
The Federal Service for Financial Markets has applied strict rules for foreign issuers seeking to issue here, closing the door for many foreign small-caps. Would-be issuers must be a member of the Financial Action Task Force, an anti-money-laundering organization; develop a prospectus in Russian; and survive the Federal Service for Financial Markets’ registration procedure.
Another obstacle that may scare off already wary foreigners is the absence of a central depositary — an institution where securities are held and transfers among traders are recorded. That role currently is fulfilled by independent bodies: the National Depositary Center and the Depositary Clearing Center.
A prime candidate to issue RDRs might not even be foreigners. The instrument might be a convenient tool for the many firms that operate in Russia but are registered abroad, such as Evraz Group, registered in Luxembourg, and X5 Retail Group, registered in Holland.
Companies such as these have expressed interest in the instrument but are concerned about technical and legal barriers. Evraz Group is interested in the RDR but wants to see a precedent set first and doesn’t want to be the pioneer, spokesman Alexander Boreiko said.
But instruments are only as good as the macroeconomic situation they operate in, and by that measure there is a long way to go, analysts say.
Foreign investment for Russia in 2008, the latest period for which data is available, was down 14 percent from the previous year. And until foreign investors are more willing to invest in Russia, the liquidity measures will continue to have a limited effect.
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