News Analysis: Oligarchs come in from the cold

The nature of comms advice demanded by Russian companies seeking to float in London is changing. Hannah Marriott speaks to leading practitioners.

Barely a week passes without a major group from Moscow or Siberia making headlines in Britain. So far this year, firms from Russia have accounted for around a quarter of all money raised on the LSE, according to the exchange.

Others - including steel producer SeverStal, aluminium company Rusal and zinc miner ­Chelyabinsk - are expected to follow companies such as Rosneft and Novatek (see below) by floating on the LSE ­later this year.

The stakes are high and these companies are naturally turning to PR agencies to steer them through the process. Only this week it emerges that Russia's biggest gold-mining firm - Polyus Gold - has hired Capital MS&L as it prepares to list in London (see Related Article).

The LSE clearly has a great deal to offer Russian businesses - the Square Mile is a hub for investment in metals and mining. Furthermore, they can avoid the US's Sarbanes-Oxley Act, which controls how firms report their
financial data.

Image of corruption
While Russia's successes on the LSE have helped ensure its companies are taken seriously by the Western media and investors, concern about levels of corruption in the country remains high. Last week, Andrei Kozlov, deputy  chairman of Russia's Central Bank, and the man tasked with bringing order to the country's banking sector, was assassinated - the latest tragic case in a country whose business practices are often seen as somewhat murky.

Edelman Europe president and CEO David Brain - who works with three Russian clients and regularly visits the company's 80-strong Moscow affiliate Imageland - says: ‘Being Russian and coming to cities such as London immediately raises questions, whether or not you think that's fair or jingoistic. Most major Russian companies have an oligarch ­behind them and lots of journalists have genuine questions about governance and what exactly you are buying.'

As Financial Dynamics senior vice-president Jon Simmons points out: ‘There is always a big focus on risk and on political factors [in media coverage]. Some people fail to recognise that this is a backward-looking perception. For example, many think Russian ­facilities are likely to be dated, but some are the most modern in Europe.'

PR firms can be hired to advise on ­issues management up to three years ­before an IPO, often to help develop comms tools such as sophisticated, international websites.

Ketchum Europe CEO Jon Higgins, who is working with the Kremlin on its G8 presidency, says: ‘Western media often have a preconception that Russian business leaders are unco-operative or unwilling to provide information to the media. This is not entirely unfounded, bearing in mind the media's ­experi­-ences during the Soviet era.'

Russian oligarchs are often not used to making themselves available to be grilled by journalists - which can be a particularly tough sell for their PR agency during the busy run-up to an IPO. Furthermore, Russian businesses may be unprepared for aggressive lines of questioning, or the need to build good contacts long before they actually need to call on them.

London-based agencies should not disregard Russia's indiginous media, explains Moscow-based MMD regional director Stephen Lock. He says: ‘City workers can be myopic about Britain's media, but there is a highly respected business press in Russia.'

Also, many Russians invest in London-listed companies, and many of the brokerage professionals in London and New York will read what Russian journalists write online.

Oligarchs in the firing line
Another strategy that Russian firms have deployed to give them credibility in the UK is the appointment of a British non-executive director. But Simmons believes this trend is in decline. ‘Lots of companies are now coming to London without "peers of the realm"-type non-execs. Novolipetsk Steel, for example, [which FD advised] was highly successful without one,' he says.

Instead, some are putting the oligarchs - often eloquent, business-savvy and highly educated - in the media
firing line, to boost the company's profile just as they would with any CEO.

‘Rather than presenting a Westernised company, more are now presenting themselves to the market as Russian companies. The investment community is sophisticated enough to judge their merit for themselves,' says Simmons. Moreover, points out Brain, the fact that firms are trying to list is likely to signal good governance: ‘Most know they must come up to speed with things such as HR or CSR.'

The trend for Russian companies looking to float here looks set to continue. Lock says: ‘All interested parties want these IPOs to be cleared by the third quarter of 2007, to avoid what we are calling locally

"the 2008 effect" - share prices risking a stumble as transition fever mounts ahead of the end of President Putin's second term.'

He predicts: ‘If, for Western media, 2006 has been the year of the Russian IPO, don't be surprised if 2007 is the year of the Russian M&A - buying assets in Europe and Asia.'

The comms advice that many Russian companies require is certainly changing - and the volume of advice they need can surely only increase.

Russian companies recently listed in London:

ROSNEFT 9 July 2006
Type of firm: Oil and gas
Raised: £3.58bn;
Advisers include: MMD, Brunswick, Hill & Knowlton

Type of firm: Food and drug retailer
Raised: £129m
Advisers include: Financial Dynamics

Type of firm: Media
Raised: £316m;
Advisers include: Brunswick

COMSTAR 13 February 2006
Type of firm: Telecoms
Raised: £564m
Advisers include: Shared Value (SV)

NOVOLIPETSK STEEL 15 December 2005
Type of firm: Steel
Raised: £354m;
Advisers include: FD

AMTEL-VREDESTEIN 18 November 2005
Type of firm: Tyres and rubber
Raised: £130m;
Advisers include: SV

NOVATEK 27 July 2005
Type of firm: Oil and gas
Raised: £531m;
Advisers include: SV

EVRAZ 8 May 2005
Type of firm: Steel
Raised: £232m;
Advisers include: Merlin

Type of firm: Food and drug retailer
Raised: £312m;
Advisers include: Citigate Dewe Rogerson

SISTEMA 14 February 2005
Type of firm: Telecoms
Raised: £718m;
Advisers include: SV

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