April 6, 2018 / 6:17 PM / in 6 months

Russian stocks deliver sanctions face-palm moment

LONDON (Reuters Breakingviews) - Spare a thought for investors in EN+. The Russian power and aluminium group only listed on the London market five months ago, only for its depositary receipts to fall below the $14 debut price. Following Friday’s news that the energy group was being added to the U.S. sanctions list, its shares dropped another 20 percent.

President of En+ Group, Oleg Deripaska attends an agreement signing ceremony with the Krasnoyarsk region's government, in Moscow, Russia December 12, 2017. REUTERS/Sergei Karpukhin

Sympathy is hard to muster, though. In the risk factors to the prospectus accompanying its listing, EN+ dutifully noted that a December 2016 executive order by outgoing U.S. President Barack Obama made future sanctions on Russian entities a possibility. Such strictures, it warned, could restrict corporate access to dollar-dominated international capital markets, and complicate transactions even with non-U.S. persons.

So it has transpired, not just for EN+ but also for aluminium group Rusal, 10 other companies, and 24 Russian businessmen and government types. The sanctions represent a robust U.S. pushback against an array of misdemeanours, from the continued occupation of Crimea to attempts to subvert Western democracies. Given that they target those like Oleg Deripaska who are close to Russian President Vladimir Putin, they will set alarm bells ringing among fellow oligarchs.

There are two possible reasons investors were surprised. One is that U.S. President Donald Trump has regularly seemed to advocate a softer approach to Moscow. Another is EN+’s actual business mix of hydroelectric power assets and a 48 percent stake in aluminium producer Rusal, which ought to benefit from strong demand from China. Unfortunately, investing in Russia requires a strong sense of which way the political winds are blowing.

Those that did so will have thought they were taking a calculated risk. Instead, they were playing Russian roulette.

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