The Russians are coming.
Well, to be more accurate, the Russians have been coming to London in their droves since the middle of the last decade, but now it looks like they mean business.
Secondary GDR listings have brought companies such as Rosneft and Severstal to the London Stock Exchange in recent years. But in 2011, however, three Russian companies, each with a market capitalisation of at least $7bn, have said they will reincorporate (two in the UK one in Jersey), seeking a premium listing on the LSE and aiming for inclusion in the FTSE 100.
Polyus Gold, Russia’s largest gold miner, gained a place on the London market in July via a reverse takeover of its Kazakh subsidiary and is now on course for a premium listing. Meanwhile, Polymetal, Russia’s largest silver and third largest gold producer by reserves, formally announced its intentions in September. And just this week Evraz, the steel producer part-owned by Roman Abramovich, said it too wanted a place among London’s elite.
But what do they get from joining London’s elite club?
Well, for Evraz at least, FTSE inclusion would see the stock outperform its Russian steel peer group within two to five months, according to Marat Gabitov of UniCredit.
If the stock is included in the index, which could happen after the FTSE Committee’s next quarterly review on December 7, it should see new demand from FTSE 100 index trackers and other investors who could not buy Evraz GDRs.
In addition, the stock’s recent underperformance seems unjustified when considering Evraz’s strengthened balance sheet — the company’s net debt has declined by 15 per cent to $6bn over the last six months, with 2011E net debt/EBITDA at 2x– Gabitov noted.
Source: UniCredit
However, Daniel Yakub and Mikhail Seleznev of Citi are less positive on the prospects for Evraz. They noted that “operational weaknesses” in the third quarter — production of finished steel, the most profitable part of Evraz’s business, declined by 5.4 per cent — will soon translate into financial weakness.
Evraz has not disclosed 3Q11 EBITDA guidance due to the regulations surrounding its creation of a UK PLC, but the Citi analysts forecasted a 2H11 EBITDA of $1.41bn, which is 14 per cent down on the 1H11 realised EBITDA of $1.63bn.
Meanwhile, both Polymetal and Polyus see a premium listing as an opportunity to increase the liquidity of their shares and broaden their investor bases. However, the gold companies also risk alienating a section of their home investor base.
Polymetal intends to delist its Moscow shares and could also be excluded from the MSCI Russia Index, a fate that has already befallen Polyus. This would mean that Russian investment funds that are only allowed to hold local shares will sell their holdings in Polymetal, as happened in the transition from Polyus Gold (the Moscow-based company) to Polyus Gold International (the new UK-incorporated company).
Evraz is not part of the MSCI Russia Index so it should see a minimal outflow of funds as a result of redomiciliation.
FT Alphaville will have more later today on if/how the City stands to benefit from the inclusion of three Russian firms in the FTSE 100.
Related links:
Evraz to pursue full London listing – FT
Polymetal eyes London listing – FT Tilt
Pick me! Russia’s Polymetal seeks to join Footsie club – FT Tilt
Russia’s top gold producer nears backdoor London listing – FT Tilt
Polyus Gold targets world No. 2 spot – FT Tilt