ENRC – ‘More Soviet than City’ [updated] | FT Alphaville

ENRC – ‘More Soviet than City’ [updated]

Wednesday’s AGM statement from ENRC, the Kazakh mining group and FTSE 100 constituent:

The Chairman, Dr Johannes Sittard, announced that the Group has initiated a comprehensive review of its corporate governance. This review will be conducted over the next three months, with the intention of establishing a Board structure that can best support the Group whilst complying with UK corporate governance best practice. At the conclusion of the corporate governance review any changes to the composition of the Board will be announced to the Market.

And not before time, although its worth noting the ENRC is already in possession of a performance review by the Institute of Chartered Secretaries and Administrators which called for “urgent actions”. As we shall that was pretty much ignored.

As such one has to ask whether the review will do anything to salvage the company’s reputation.

The fallout from today’s AGM, which saw Sir Richard Sykes, the miner’s senior independent director, and Ken Olisa voted off the board by the three oligarchs who control 35 per cent of the business (Alexander Machkevich, Alijan Ibragimov and Patokh Chodiev) and the Kazakh government (which owns a further 11 per cent) has shown just how dysfunctional the ENRC board had become.

Indeed, Olisa’s valedictory letter to the board (see below) will reinforce the view that ENRC is a private company hiding behind the facade of a FTSE 100-listing.

From the very beginning it became apparent that the journey on which the company was embarked was not going to be a smooth one. Although the founding shareholders had signed Representation Agreements committing them to support an independent board it soon became obvious that the original owners’ informal historical links with Directors and senior management meant that their influence would be ever present.

This is not necessarily a problem – there are many listed companies whose boards include major shareholders and where the tension between being a private company and a public company is significant. In our case however, it has become more and more apparent that the founders’ influence was less transparent than is ideal; manifesting itself, for example, in the Chairman frequently playing the part of founders’ messenger – not always accurately – rather than as leader of an independent board.

Unhelpful though this was, it could have been managed had we been well-led and effective.

Unfortunately we weren’t. As you know I have been increasingly vocal about my concerns over how our progressive dysfunctionality, exacerbated by malign and inaccurate leaks from within, have contributed to a catastrophic decline in our share price relative to the FTSE 350 mining index.

Oh dear, oh dear, oh dear.

But at least we all know where we stand now, says Olisa.

Whilst not really doubting the outcome, I had rather hoped that we would determine privately which option was preferred by the principal shareholders – the founders, Kazakhmys and the Kazakhstan government – and then effect an orderly restructuring of the board to achieve the consensus.As you know I had no interest in remaining once the change was effected if it were the second option and was happy to step down as part of that orderly process.

My dismissal alongside that of Sir Richard is a rather more brutal way of signalling the principal shareholders’ decision to the market than I had in mind – more Soviet than City – made more so because it was in absolute contravention of the assurances given last week.

But it is at least unequivocal; and settles any debate on the matter of which alternative they prefer!


Still, Olisa’s letter sticks slightly in the craw.

It was only in March that he wrote to the FT complaining about the tone of a Lombard article and arguing that attracting companies like ENRC to London was a good thing.

The real problem with Lombard’s throwaway lines is the message that such innuendo sends to foreign companies considering listing in London rather than New York or Hong Kong. Attracting companies such as ENRC to London is good for the company because it provides capital and liquidity but it is very, very good for London where companies such as ours make a major contribution to the City fee pool. Snide remarks may make for good propaganda but they are bad for national productivity.


Update: June 9, 14.20 (BST).
Reaction from the City to the boardroom executions:

JP Morgan:

Could the founders consider taking the business private? We think it not inconceivable given the listed minority is worth only $3.5bn, ENRC is carrying very low gearing and the constraints of a UK main board listing are clearly frustrating the founder shareholders. This could present meaningful upside risk to our recommendation but in our view is probably still an ‘in extremis’ option vs redomiciling to a ‘lighter-touch’ regime.


The aftermath of the ENRC board debacle features heavily in the press today with The Times publishing a Valedictory letter from one of the two ousted NEDs Ken Olisa. It is clear the company’s credibility on governance is at an all time low – a shame given that its assets and growth plans are actually quite attractive. At the heart of the problem seems to be the idea that the oligarch shareholders who are not represented on the board very much meddle in the running of the company.

With investors unable to have any visibility on the workings of this company now, we can only speculate as to why the key shareholders have ‘turned’ on the minority shareholders representatives. The governance structure of the company is now in shreds and the long term viability of ENRC as a listed entity must be called into question. Perhaps the nuclear option of kicking out the ‘turbulent’ NEDs is a pre-cursor to some take-private transaction.

ENRC’s shares are down 26% YTD (14% underperformance relative to the sector) putting it on a current year PER of 6.8x. This rates it slightly cheap relative to its more cyclically stretched diversified peers. For an acquiror, this valuation would be a bargain. Frankly we are unsure what to do with the shares. To our mind the likelihood of a corporate transaction/break up seems to be rising, so selling now could be a mistake.

Related link:
Never a dull moment at ENRC – Nils Pratley