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Does the decision by Russia’s aluminium giant Rusal to list in Hong Kong rather than London mean a shift in IPOs to the east? Dimitry Afanasiev looks at the evidence.
For months now the story of Rusal’s IPO has commanded many column inches, culminating last week in extensive media coverage of the successful dual listing in Hong Kong and on the Euronext Paris exchange.
The level of interest was not surprising. It was the biggest mining IPO in recent years and Rusal’s ability to successfully refinance one of the biggest debts in Russia’s corporate history and simultaneously to raise substantial new capital has come to symbolise the slow but hopeful recovery in financial markets.
On Rusal’s “D day”, however, the question that was raised in many minds was what this means for Hong Kong Exchanges and Clearing (HKEx) and its western rival, the London Stock Exchange (LSE).
As cash starved Russian and other CIS companies begin to set their sails for capital market debuts, will the flow of their IPOs continue to head West, or will the flow now follow the new channel to the East?
To answer this we must first deal with certain misconceptions. Hong Kong is not an “easy ride” and any suggestions otherwise simply lack the knowledge of the Hong Kong market or Rusal experience.
The HKEx IPO process is highly credible, sophisticated and vigorous. If anything, it is more, rather than less, demanding than that of the LSE.
Although the HKEx and the LSE are both based on the principles of full disclosure, the HK regulator and the HKEx regularly take a much more detailed and pro active involvement in testing and demanding proof of the material disclosures and in certain instances prescribe protections for retail investors.
The LSE is often more likely to presume that full disclosure is sufficient investor protection.
Yet the more stringent the process tends to be, the more rewarding it is to complete it and Rusal has gained a new level of transparency and greater long term respectability for its equity story as a result.
HKEx has also shown an intricate understanding of founding shareholders’ roles and their importance to any business’ future - a common denominator in Russian and Chinese companies alike.
For Russia Inc the successful Rusal HK IPO is a noteworthy event. Never before has there been such an opportunity for Russian companies to diversify their sources of capital and gain direct exposure to Russia’s neighbouring Asian financial markets.
It has highlighted a shift in economic growth to Asia and marks a new chapter of investment cooperation between Russia and China.
Yet not every company will follow suit. A HKEx listing, first and foremost, must make sound economic sense. For those companies that focus on natural resources, have geographical proximity to China and aim at its customer base, it is an option to consider.
Importantly, these will not be only Russian companies, but will include businesses from other parts of the CIS and Central Asian regions, areas which in recent years have seen growing Chinese interest and investment presence.
In this context, for many, LSE will remain the premier capital market destination. It continues to have an air of familiarity with Russian businessmen and its experience with Russian companies is formidable.
The LSE need not worry; HKEx will not replace it but rather add a much needed diversity and balance to corporate equity raisings at the time when capital remains scarce.
Dimitry Afanasiev is chairman of Egorov Puginsky Afanasiev & Partners, legal advisers to UC Rusal