Russian companies moving to London are expected to start making use of their new-found acquisition currency as they seek a higher international profile -- or a route to cash out -- after their stock market listings.
The wave of recent arrivals were geared towards boosting share liquidity and protecting ownership rights. But gaining a premium London listing also opens up the possibility of large deals, giving a liquid currency to buy assets.
Russian companies want to be seen as major players in the world, they want respect and this is, to them, one of the tickets to the big league, said Brian Zimbler, partner at law firm Dewey & LeBoeuf in Moscow. They are interested (in M&A), and whatever the prospectus says, it is on their minds.
Precious metals miner Polymetal
Evraz, part-owned by Chelsea Football Club's Roman Abramovich, and Polymetal, part-owned by tycoons Alexander Nesis and Alexander Mamut with Czech investor PPF -- have so far seen their move pay off in their London share price -- up 14 percent and 10 percent respectively. They should get a further uplift as funds tracking the FTSE 100 are obliged to buy shares.
Upgrading to a premium listing gives a company a higher international profile and increases the corporate governance standards required -- making it more attractive both as buyer and seller.
An LSE listing offers Russian corporates a more liquid acquisition currency, which is more acceptable to potential partners and shareholders, Daniel Jacobowitz, co-Head Russia & CIS Investment Banking at Deutsche Bank
New FTSE entry rules state companies with FTSE ambitions must have at least 25 percent of their shares freely tradable.
(A premium listing in London) increases strategic optionality and makes a lot of sense for big companies with an expansive strategy, said Christopher Barter, co-CEO of Goldman Sachs, Russia and CIS
THE BIG LEAGUE
Polymetal said in September that the London listing would give it a much more attractive and universal acquisition currency for potential M&A transactions, and that it intended to stay in its key geography - the former Soviet Union - and remain focused on gold and silver.
Polymetal have been making acquisitions for the last three years but they've been small ones, and that's probably just a matter of the balance sheet constraining them, said Barry Ehrlich, metals and mining analyst at Alfa Bank in Moscow.
Ehrlich noted Polymetal's move to London could have been driven by an intention at some point to sell the whole entity ... (or) ... go for something bigger and make an offer to one of the other listed companies.
For Polyus, which has a number of assets in its portfolio, an exit by controlling shareholders is more likely, he said.
(A London listing) makes it easier to (do) a merger with a major... through a stock-for-stock deal. The chance of them selling the whole company is extremely low, Ehlrich said.
Evraz's FTSE move is more likely to have been driven by the desire to lift the share price than make acquisitions, Ehlrich suggested, noting that shareholders' main priority appears to be cash return through dividends.
Evraz' chairman and shareholder Alexander Abramov was quoted by the Financial Times on Tuesday as saying a merger with No.2 player Severstal would be a good idea, but analysts said such a deal was unlikely.
Watching some of its largest companies exit has been embarrassing to Russia, which has been making an attempt to create a financial centre that will encourage businessmen to keep their capital and families in Moscow rather than Belgravia.
We want IPOs to be happening in Russia, said Ruben Aganbegyan, president of the MICEX-RTS exchange. Our plan is next year to start improving the situation.
The rouble-denominated MICEX is in the process of merging with dollar-based rival RTS and plans to create a central depositary aimed at increasing liquidity on the exchange and attracting foreign investment.
Aganbegyan, speaking on Monday after MICEX-RTS signed a deal with the OECD to strengthen corporate governance in Russia, said he did not expect the exodus to continue and cited potential concerns that the FTSE index becomes too dominated by foreign-owned companies.
It is a UK index and is supposed to show how things are doing in the UK - not in Russia, he said.
(Editing by Douglas Busvine and Sophie Walker)