Russian and Kazakh firms set for relegation from FTSE 100

 
Tim Wallace
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ALL THE Russian and Kazakhstan-based firms listed on the London Stock Exchange are expected to leave the top FTSE 100 index in the coming months in a stunning reversal from the tide of eastern giants entering the blue chip London market in recent years.

Mining firms Polymetal and Evraz are widely expected to fall out of the FTSE 100 in next month’s review, as their share price has fallen in line with declining commodities prices.

And the troubled Eurasian Natural Resources Corporation (ENRC) will either go private or be kicked off the index because too few of its shares are freely tradable, in breach of newly-tightened rules on the proportion of shares which must be independently traded and not in the hands of a majority owner.

Meanwhile, Kazakhmys fell out of the FTSE 100 in February after its value dropped by 30 per cent over 2012.

Leaving the FTSE 100 alone is enough to adversely affect a stock’s price, as tracker funds which follow the index automatically stop investing in the companies.

Kazakhmys’ shares fell another 50 per cent when it exited the index of the top 100 publicly-quoted firms.

The departure of Polymetal and Evraz is partly caused by the wider fall in mining stocks which analysts expect to continue.

“US dollar-denominated metals such as gold, silver and copper have been struggling in the face of a greenback which continues to strengthen versus its major peers,” said Mike van Dulken from Accendo Markets.

The fall of Russian and Kazakh titans from the FTSE 100 represents a sharp turnaround from recent years – in 2006, for example, the country’s businesses raised more capital in London than domestic firms did.

They sought to gain both respectability and stability by listing in London, accessing a larger pool of investors in the City but also minimising the damage caused by perceptions of Russian firms being badly run.

But the adventure has not been without its problems.

“There has been a series of companies trading at a discount to their net asset value. ENRC has stood out with a clear discount,” said Tim Bush from the shareholder research and consultancy group Pirc.

“In these cases you can put that down to investors not trusting the numbers, not trusting the board, or not trusting the other people in the firm.”

But despite those worries rules were eased to allow firms to list in London, with Evraz, which is partly controlled by the Chelsea football club owner Roman Abramovich, allowed to float despite offering less than a quarter of shares on the open market. Since then the rules have been tightened up again, with a 25 per cent free float rule more rigorously applied.

The experience of the Kazakh-owned miner ENRC, which is now the subject of an investigation by the Serious Fraud Office, has been exceptionally damaging for the image of the region’s companies, as have BP’s problems with its one-time partner in Russia, TNK.

Famously, former ENRC director Ken Olisa called the firm “more soviet than City” when he was voted off the board in 2011.

Controversially, US investment bank Goldman Sachs dropped MegaFon as a client late last year just ahead of the telecom group’s flotation in London amid worries around the company’s ownership structure post flotation.

However, some Russian-based businesses are keen to show they are fighting against the perception of bad leadership.

Polymetal, for instance, boasts that the majority of its directors are independent non-executives, as is its chairman, while its free float stands at more than 50 per cent of total shares.

Frontrunners to join the FTSE 100 in next month’s review include construction supplier Travis Perkins and builder Persimmon.

GOING, GOING, GONE

ENRC
Floated in London with a market cap of £6.8bn in December 2007
Officially joined the FTSE 100 in March 2008
Serious Fraud Office launched a criminal investigation into business practices in April 2013
Currently subject of a takeover bid from three oligarch founders that would see it taken private

POLYMETAL
Founded by private equity billionaire Alexander Nesis in 1998
Listed on the London Stock Exchange in October 2011 with a market cap of £3.55bn
Joined FTSE 100 in December 2011
Shares down 45 per cent since the start of the year

EVRAZ
Major shareholder Lanebrook is controlled by Roman Abramovich
Floated 8.3 per cent of its shares as global depositary receipts in London in June 2005, and upped free float to 14.3 per cent in January 2006
Joined premium listing with a free float of 23.4 per cent in November 2011
Joined the FTSE 100 in December 2011
Shares down 48 per cent since start of the year

KAZAKHMYS
Listed on the LSE in October 2005 with a market capitalisation of £2.6bn
Entered the FTSE 100 in December 2005
Ejected from the FTSE 100 on 18 March this year after shares lost half their value in a year
Holds a 22 per cent stake in ENRC