Management Today Magazine: Invasion of the Russian oligarchs
Thu 29 Aug 2013
Last year, the UK Listing Authority raised the bar on the minimum number of shares that must be offered in order to list in London to 25%. Previously, the regulator had discretion to make exceptions, which it did with apparent gusto, enticing companies here by allowing them to offer tiny slivers of their shares. It was a crucial point, because it allowed oligarchs to raise billions from City investors yet retain a tight grip over how they ran their companies. In some cases, they have found the corporate governance strictures that are supposed to be part of the bargain of coming to London painfully unfamiliar. No longer. The imposition of a hard 25% free-float floor will make oligarchs think twice about selling shares here if it means they actually have to operate for the benefit of British pensioners, rather than just for themselves.
Bankers bemoan the change. 'London used to be like Wimbledon, where everyone could come and play,' says a prominent City banker. 'Going back to the 1850s, the City has been the global hub for foreign resources firms. There was always a tension between making London attractive yet not getting too lax, but it was managed. The bar is too high now. This will hurt the City.' The welter of new rules - the free-float requirement for companies headquartered abroad that want to be included in the FTSE 100 index of top companies has also been raised, from 25% to 50% - hasn't closed the door. But it has made it harder to get through. 'Short cuts were taken and shareholders felt the consequences,' says Jim Strike, investment director at Axa Investment Managers. 'I don't think London is closed for business. It's open for business - at the right terms.' And the Russians keep coming. That is partly because nearly 25 years since the Wall fell, rather than having opened itself up, Russia has metastasized into a bloated super-state built to serve a political elite - not unlike what it was during the Soviet era.
Last year, it ranked 133 in Transparency International's global corruption index, behind paragons of rectitude such as Iran, Indonesia and Uganda. Russia remains a dangerous place to do business and to make large amounts of money. Those who get on the wrong side of the government, such as Mikhail Khodorkovsky of Yukos, once Russia's richest man, pay high penalties. The 'prisoner of conscience' is currently doing 12 years in prison for crossing Putin. 'The reality is that zero has changed over the past 10 to 15 years. The expected liberalisation, increased privatisations, getting the state out of the economy - it hasn't happened because if you want to get truly rich, it's still better to be a politician than a businessman,' says one banker who specialises in Russia. 'They know that all they need is for oil to drop to $80 or $90 a barrel and they are going to be in trouble. So they come to London, they send their kids to school here. And the City remains the global centre for emerging markets companies.'