Evraz, Polymetal Join FTSE 100 to Escape Putin Political Risk
December 08, 2011, 12:41 AM ESTBy Ilya Khrennikov
Dec. 7 (Bloomberg) -- Evraz Plc and Polymetal International Plc are set to be the first Russian companies to join the U.K. benchmark FTSE 100 Index and escape rising country risks as Prime Minister Vladimir Putin attempts to reclaim the Kremlin.
Polymetal and Evraz are eligible for inclusion after moving their main listing to London, according to FTSE, a joint venture by the London Stock Exchange and the Financial Times. FTSE is due to publish quarterly revisions today.
Evraz, part-owned by billionaire Chelsea football club owner Roman Abramovich, aims to become the first steelmaker in the FTSE 100. Polymetal, a gold and silver producer, chose to drop out of the MSCI Russia Index in favor of the FTSE 100’s wider range of investors, including U.K. pension funds.
Police detained more than 500 people at protests in Moscow after the Dec. 4 parliamentary election, which oppositionists and observers said was marred by violations. Putin’s United Russia party lost its super-majority, getting 53 percent of State Duma seats. Putin plans to return as president in March.
“The Russian miners are sending a signal to investors: come on, treat me like a serious international company,” said Roland Nash, chief investment strategist at Moscow-based Verno Capital, which manages $175 million of assets. “They escape the bad bit of emerging markets -- weak institutions, while keeping the good bit, which is growth.”
Escape Volatility
Polymetal and Evraz are seeking to escape volatility associated with Russia and emerging markets, said Nikolay Sosnovskiy, a metals analyst at VTB Capital.
Russian companies have traditionally traded at a 30 percent to 40 percent discount to global peers because of investor skepticism about corporate governance, Nash said. Admittance to the FTSE 100 will hold them to stricter standards, he said.
Evraz’s price-to-earnings ratio is 7.20, compared with 12.89 for ArcelorMittal, the world’s largest steelmaker, data compiled by Bloomberg show. Polymetal trades at more than 20 times earnings versus about 33 for Randgold Resources Ltd, a member of FTSE 100.
“With a primary listing in London, the companies get a more diversified investor base, more liquidity and less volatility, which results in a lower cost of capital for their expansion,” Nash said.
Shares as ‘Currency’
London-traded shares are “more attractive for any potential M&A target than global depositary receipts have been” because they are more liquid, Evraz Chief Financial Officer Giacomo Baizini said by e-mail.
Polymetal has several acquisition targets and may use the London shares as “currency,” Chief Executive Officer Vitaly Nesis said in an Oct. 13 interview.
The primary London listing will make equity-based acquisitions easier, said Rob Edwards, chief metals analyst at Renaissance Capital. Polymetal’s Russian shares and depositary receipts suffered from “relative illiquidity” and deals with them “took almost years to close,” Edwards said.
Polymetal delisted from Russia’s Micex and RTS indexes after the move to London.
The change echoes the 1999 moves by South African Breweries Ltd. and Anglo American Plc of their headquarters and primary listings to London from Johannesburg to attract global investors and aid international expansion after the economy slowed in post-apartheid South Africa.
Political Unrest
“Political risks are clearly rising and have become an important trend to watch,” Charles Seville, a credit analyst at Fitch, said Dec. 5. While United Russia’s support eroded in the parliamentary election, the outcome of the presidential election is “in little doubt.”
Putin stepped aside as president in 2008 in favor of Dmitry Medvedev, having served a maximum two consecutive four-year terms. The term will be lengthened to six years starting from 2012. Putin has said he may appoint Medvedev as his prime minister after the March election.
Putin and Medvedev’s possible job-swap “could cause political protests and unrest,” Evraz said in an October prospectus for a share swap it used in moving its listing. Any suspension of economic reforms or lack of consensus between the president, government and powerful economic groups could cause Russia’s investment climate to deteriorate, Evraz said.
Stability or Stagnation
“Without a clear reform plan, the stability touted by Putin looks more like stagnation to many in Russia,” Lilit Gevorgyan, a London-based analyst at IHS Global Insight, said by e-mail. “Concerns over stagnation and little prospects of improvement in business environment are only likely to grow unless the Medvedev-Putin tandem comes up with more appealing policies, which do not merely include pledges of a good life and increased public and military spending.”
Before the move, Evraz was registered in Luxembourg and sold depositary receipts in London in 2005. The company has spent $7.8 billion to diversify beyond Russia since 2006, buying assets in the U.S., Canada, South Africa and China. according to UralSib. That was the year Abramovich became the steelmaker’s largest individual shareholder.
Jersey-based Polyus Gold International Ltd., Russia’s largest gold miner, plans to change its domicile to London via a share swap and then seek inclusion in the FTSE 100, the company said last month. Polyus will have to boost its free float with a sale of treasury shares to join the index, according to Renaissance Capital.
OAO Uralkali, Russia’s largest fertilizer producer by value, is also considering switching its main listing from Moscow to London.
--With assistance from Yuliya Fedorinova in Moscow. Editors: Torrey Clark, Brad Cook
To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net
To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net
