July 11 (Bloomberg) -- To gauge London’s place in the global economy, you could examine World Bank statistics, canvass investors and analyze trade volumes. Or you could visit Mahiki, a Polynesian-themed nightclub in upmarket Mayfair where a bottle of Cristal Champagne goes for $719 -- and Russian customers are being supplanted by revelers from countries including China and Nigeria.
“We’re seeing a lot less Russian surnames on the booking sheet,” said Michael Evans, the creative director of the club, where the likes of Rihanna and Prince Harry have been spotted after dark. “It’s very easy to see what’s going on in the world from the markets we attract.”
With violence continuing in Ukraine and President Vladimir Putin pushing to reduce reliance on the West, wealthy Russians are buying fewer high-end goods from furs to Ferraris, and doing less business with the city’s law firms and investment banks. That leaves London, uniquely connected to faraway, fast-growing economies, looking for new patrons, with China and sub-Saharan African countries pitched as possible successors.
Takeovers involving Russian companies, often handled by the London offices of global banks, tumbled 39 percent in the first half of 2014 to $16.6 billion, Bloomberg data show. Russian firms are having a tougher time raising money too. HSBC Holdings Plc and Lloyds Banking Group Plc last month pulled out of a loan to back a $1.5 billion oil-supply deal for state energy group OAO Rosneft due to concerns about Ukraine, according to a person with knowledge of the matter.
Escalating tensions in Ukraine’s east may bring Russian economic growth to a near-standstill this year, the country’s Finance Ministry said yesterday. The U.S. and European Union are threatening further sanctions, potentially targeting entire industries, unless the unrest eases.
In another sign of the slowdown, retail spending by Russian visitors to the U.K. between January and May declined 22 percent from a year earlier, according to Global Blue, which runs tax-rebate services. Chinese spending climbed 8 percent in the same period.
Still, Chinese citizens in London may not replicate the tidal wave of wealth that Russians brought with them.
“The wealthiest Chinese residents of Britain are mostly between 18 and 24” -- students from rich families attending U.K. universities, said Alex Cheatle, chief executive officer of Ten Group, which provides luxury concierge services. Russians, by contrast, tend to be older professionals with businesses who settle in the U.K. with their families at least part-time, and spend accordingly. One Russian client ordered custom-made Christmas gifts that opened to reveal “several thousand pounds worth of jewelry” for a staff holiday party, Cheatle said.
A few years ago, Russians’ orders for customized Ferraris or Lamborghinis “with your own leather, gilt-edged instrument dials, personalized with your initials, with tailor-made Louis Vuitton luggage” to match, were a mainstay for dealers, said Simon Empson, managing director of London luxury car broker Broadspeed Ltd.
One customer spent 150,000 pounds customizing a 70,000-pound Range Rover. Another was sent an order form for options on a BMW.
“He faxed it back blank except for writing ‘Give me everything,’” with an American Express number appended below, Empson said. “The sanctions have ended that business” as wealthy Chinese prefer chauffeured cars and African buyers are more restrained in their spending, he said.
Meanwhile, Putin is urging “strategic” companies to limit their use of overseas banks. In recent years, Russia’s big businesses had grown ever more reliant on foreign -- and especially British -- legal and banking systems, which they viewed as more reliable than those at home.
“The government was already keen to bring more Russian business back,” said Logan Wright, managing partner for Moscow at law firm Clifford Chance. The sanctions have added to that resolve, highlighting “the exposure they have to the international financial system.”
There’s no single candidate to fill Russia’s role in London’s economy, though several other emerging markets have been increasing in prominence.
April saw the London initial public offering of Nigerian oil producer Seplat Petroleum Development Co., making it the country’s first company to be listed in both Britain and at home. Another business from the region, the African unit of Portuguese construction group Mota-Engil SGPS SA, is planning an eventual London IPO. And society bible Tatler magazine late last year ran a 4,000-word feature on Nigerians’ adventures with Bentleys and Mayfair real estate. Mahiki, for its part, is planning a club in Lagos.
The biggest prize is China. Whereas London is the undisputed foreign hub for Russian business, it competes with Hong Kong, New York, Toronto and Sydney for Chinese attention.
“We are now seeing very large investments from China into the U.K. that just weren’t happening six or seven years ago,” said William Buckley, a partner at law firm Linklaters.
Better political relations have helped, and London has succeeded, Buckley said, in convincing Chinese firms it can serve as a platform for further global expansion. One example: developer ABP China (Holding) last year announced a 1 billion pound plan to build a 35-acre hub for Asian businesses on former industrial land in east London.
George Osborne, the chancellor of the exchequer, has said he wants to make Britain the main hub for Chinese finance outside of Asia, and the government has moved to relax visa rules after lobbying from retailers, hotels and airlines.
Even in large numbers, Londoners shouldn’t expect new arrivals from China to fully assume the role that wealthy Russians have held in the city’s economy, cautions Peter Wetherell, CEO of real-estate agency Wetherell. For the most part, he said, they aren’t spending enough to become players in storied districts like Kensington and Knightsbridge, choosing instead to stick to less-prestigious zones on the fringes of the central city.
“The Russian market was like a Champagne fountain,” Wetherell said. “The money was coming into the top and flowing down.”
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