Breakingviews-Russian delay adds to Polyus UK listing concerns

Fri Oct 28, 2011 10:49am BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Jason Bush

MOSCOW, Oct 28 (Reuters Breakingviews)- Polyus (PLZL.MM) must wait. The Russian goldminer’s plans for a premium London listing and FTSE 100 inclusion suffered an unexpected setback after the Russian government failed to sign off on Polyus’ change of address. The delay may be politically motivated. It should remind London regulators that it is unwise to waive their rules for Russian companies.

Both the Russian government and the company have played down the delay. Still, it’s odd that Polyus’ long-planned move was not better prepared. And the regulatory setback comes not long after Polyus’ largest shareholder, billionaire Mikhail Prokhorov, staged his much-publicised attempt to enter politics, which ended in fiasco. Lately he has become an outspoken critic of Russia’s system of government.

No one should be too surprised if Prime Minister Vladimir Putin, who heads the commission that must sign off on Polyus’ listing plan, has wanted to remind Prokhorov who is boss. In itself this may be no great tragedy for Polyus: it could be more a gentle nudge than an iron-fisted clampdown. Still, it’s a further reminder for investors that strategically-sensitive companies cannot escape the unpredictable regulatory environments of the countries in which they operate.

This is not the first embarrassing setback for Polyus. Its listing plan was previously called into question by an ugly row with former Kazakh owners of KazakhGold, a subsidiary that had a pivotal role in Polyus’ convoluted legal transformation. Having accused theses shareholders of massive fraud, Polyus found itself the butt of regulatory attacks in Kazakhstan. The two sides eventually compromised, but their peace deal is still subject to hiccups. The risk of other such imbroglios won’t disappear with the expedient of registering Polyus in the UK.

All of which lends weight to the arguments of institutional investors who worry the UK Listing Authority is being soft on Russian FTSE-hopefuls. F&C Investments recently expressed concerns that Polyus’ 13 percent free float was below the 25 percent threshold that is normal for premium listings, and criticised the practice of granting waivers to emerging market applicants. Strict listing requirements won’t guarantee against upsets caused by unpredictable politics. But at least, when rules are fully enforced, investors only have themselves to blame when they get burned.

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CONTEXT NEWS

-- Gold miner Polyus Gold <KXZ1q.F said this week that it had failed to win approval from the Russian government commission on foreign investments for its proposed move to change its country of residence to the United Kingdom, required for a premium listing on the London Stock Exchange. Dmitry Peskov, the spokesman for Russian Prime Minister Vladimir Putin, said that the commission’s decision was “purely technical”, resulting from the lack of several necessary documents.

-- In a letter published in the Financial Times on Oct. 20, Karina Litvack, head of governance and sustainable investment at F&C Investments, argued that Polyus should not be granted a premium London listing as long as it did not meet the free float requirement of 25 percent normal for such listings. Litvack wrote: “a waiver would result in Polyus joining the FTSE 100 index – an index that has progressively admitted a disproportionate share of extractive companies based in jurisdictions where rule of law is often called into question.”

-- On Oct. 14, Polyus Gold extended a deadline for Altyn Group, owned by the Assaubayev family, to acquire production assets owned by Polyus affiliate KazakhGold in Kazakhstan. Under a deal reached in December 2010, the Assaubayevs agreed to acquire the assets for $509 million, but financing difficulties mean that the acquisition of these assets has been repeatedly delayed. The deal was part of the settlement of a legal dispute, in the course of which Polyus had accused the Assaubayevs of defrauding KazakhGold out of $450 million, while Polyus had faced legal probes and threats to its licences in Kazakhstan.

-- Russian tycoon Mikhail Prokhorov, a 40 percent shareholder in Polyus, quit the pro-business party Right Cause in September, three months after he launched a high-profile political campaign as the party’s leader. Prokhorov said that the results of its party congress were fabricated, and accused senior Kremlin officials of orchestrating a “hostile takeover” of the party.

Reuters: Polyus London listing delayed by Russian government [ID:nL5E7LP33E]

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(Editing by Pierre Briançon and David Evans)

((jason.bush@thomsonreuters.com)) Keywords: BREAKINGVIEWS POLYUS

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