While London continues to struggle to create an attractive environment for companies in search of fresh equity, the last thing it needs is a daily diet of allegations and counter-allegations about a deal, lauded as a triumph by banks such as JP Morgan, Credit Suisse and Evolution (before its sale to Investec) only two and a bit years ago.
But that is what we are all being treated to now as Bumi, the mining group created by Nat Rothschild, which raised around £700m in the markets at a time when funds were still quite hard to attract, is torn apart by boardroom battles.
Shares in Bumi that were once worth more than 1,000p are now worth only around 200p as the markets react to internal divisions and charges of financial irregularities at the company’s Indonesian arm.
Investors who thought they were backing a copper-plated vessel have found it has a leaking hull instead.
The whole Bumi concept arose because Rothschild believed that by putting together Indonesian assets with UK management and top corporate governance, he could wring substantially more profit out of the operation. He was warned by some at the time that by teaming up with the Bakrie family he was biting off more than he could chew but he chose to go ahead all the same.
Rothschild’s woes in Indonesia come as the London markets toy with the Russian question again, as a host of Russian companies head for share listings – and they are another reminder to investors of the need for top corporate governance.
Sberbank has already succeeded in raising $5.2bn with a London-Moscow secondary public offering. And MD Medical Group, a healthcare group, completed a placement, though it raised only a modest $311m.
But earlier this week Russia’s Promsvyazbank pulled its $500m London-Moscow offering after the lender was unable to fill order books at its desired price range. The decision to pull the deal is a setback for Russian IPO hopefuls, who are attempting to stage a return to equity capital markets this autumn for the first time in more than a year.
In such uncertain markets, with investors naturally dismayed by the Bumi affair, there could not have been a worse time for Goldman Sachs to have stepped back from the syndicate advising Megafon, the Russian telecoms business, from its intended London flotation, with sources citing corporate governance concerns.
Importantly Morgan Stanley remains on the Megafon advisory team, but Goldman Sach’s absence and the reasons given for it, albeit in an unsourced manner – has only unnerved potential investors further.
In the circumstances, the Direct Line flotation, advised on by Goldman, Morgan Stanley and UBS, turned out to be a success.
Although the business itself is seen as low growth and highly competitive, Direct Line is a standard UK corporate, with UK levels of corporate governance.
Banking sources speak about tension between advisers during the roadshow about how best to value the business and how to educate the institutional investors, but in the end the issue got away. That was the boost the listings market needed to counter so much of the gloom.
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