Go East and List
Gazprom’s Finance Director Andrey Kruglov announced recently on Russian TV plans for the energy giant to list on the Hong Kong Stock Exchange. Technically it would be the first Russian Company to do so, as Oleg Deripaska’s UC RUSAL is structured under a Jersey based entity and listed prior to a policy change by Hong Kong regulators in 2013. The other Russia-based company, IRC Ltd, to have listed, is incorporated in Hong Kong. The significance of the recent signing of the International Organization of Securities Commissions’ (IOSCO) Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU) by the Russian Central Bank has gone largely unrecognized. But being outside of the MMoU had been a major issue for Russian companies considering capital raising in China, and fears were expressed as late as January that, amidst ongoing conflict in Ukraine, Russia's signing of the MMoU might be further delayed.
Sanctions have been most effective in squeezing Russian banks and businesses by preventing them from meeting their borrowing needs. In April of last year Russian President Vladimir Putin called on Russian companies to delist from Western stock exchanges, where they could become targets of economic reprisals, and return home. However, even before the recent dramatic drop in oil prices and consequent fall in the Ruble, it was widely recognized that the Moscow Exchange could not meet the capital requirements of all of Russia’s larger companies in the short term at least. Russia’s other energy giants LUKoil and Rosneft have repeatedly flirted with listing in Hong Kong. This global financial centre is becoming even more attractive with its recent link up with Shanghai, through the Shanghai-Hong Kong Stock Connect. Shenzhen, a third Chinese financial centre in the global top ten by market capitalisation, but like Shanghai currently restricted to Chinese companies, may also form a stock connect with Hong Kong this year. If Chinese investors from all three centres become accessible through Hong Kong, the combined market capitalisation of 7.5 trillion US dollars (Source: Goldman Sachs) will pose a serious challenge to New York and London.
A wider pivot towards China has been the main plank of Russia’s evolving economic response to western sanctions. Public statements from Moscow and Beijing on forging greater economic and trading links have been matched by two massive multibillion dollar gas deals in May and November of last year, and a three-year currency swap deal worth 150 billion yuan between the Russian and Chinese central banks in October. But these massive headline-grabbing deals have done little so far to solve the financing problems of Russian business. Last November Russia’s Economic Ministry announced that the Russian state development bank, Vnesheconombank, would be opening a branch in Hong Kong to support Russian companies seeking to list there. The signing of the MMoU removes a major barrier to a series of high profile Russian IPOs in China, likely with Beijing’s blessing.
In his opening speech at the Sochi International Investment Forum in September 2014, Russian Prime Minister Dmitry Medvedev encouraged Russian businesses to look at the challenges they face as an opportunity. To adapt to the massive changes to the world economy in recent decades by looking east. To build up trust, trade and investment links with China. Soon Russian business leaders may finally be making serious strides in this direction.