Deals

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

The past decade has been a testing time for the Russian tycoon's love affair with London. The worst relations with the West since the Cold War, economic sanctions on Russia's biggest companies and an oil-price rout that sank the rouble to record depths forced Russian companies and investors to migrate elsewhere.

An index of London-listed Russian stocks has fallen 42 percent over the past decade. There have been several de-listings. And in 2010, billionaire Oleg Deripaska snubbed London by listing his aluminium giant Rusal in Paris and Hong Kong.

Moscow Calling
Top Russian Global Depository Receipts (GDRs) listed in London have had a rough history
Source: Bloomberg

But "London-grad" seems to be staging a comeback after the Brexit vote. A firmer oil price has put Russia's economy on a road to recovery and reinvigorated investor demand for emerging markets. Gold producer Polyus PJSC, controlled by the family of billionaire Suleiman Kerimov, returned to the London market this year after de-listing in 2015. Its depository receipts have risen 23 percent since.

Now Deripaska is planning a U.K. listing for En+ Group, a metals and energy group, indicating a valuation as high as $8.5 billion after share sales in London and Moscow.

No doubt, this will be held up as evidence of London's international appeal, at a time when politicians are desperate for good investment news and the London Stock Exchange Group Plc has proven itself willing to dilute its listing standards to secure big-ticket IPOs.

U.K. flotations raised about $8 billion last year, versus $20 billion in 2015. Xavier Rolet, the LSE chief executive fighting to win the Saudi Aramco IPO, cheered the return of Polyus in July with the words: "London remains the natural destination for Russian companies seeking access to international investor capital."

Brexit Rebound?
U.K. stock-market listings have recovered so far this year, and Russian firms may boost them
Source: Bloomberg, 2017 figures for year-to-date

Still, it's hard to say yet whether this return of the Russians is much deeper than a toe-dipping exercise. The stakes being floated are relatively small: Polyus sold about 10 percent of its shares, while En+ is offering up to 18.8 percent of its issued share capital on a fully diluted basis, according to Bloomberg News.

Chinese investors are getting the big slices. A consortium led by Fosun International Ltd. bought 10 percent of Polyus ahead of the share sale, while Deripaska will sell $500 million of En+ stock to China's AnAn Group, which is acting as cornerstone investor. Russia and Qatar may snap up more.

And even as emerging market assets enjoy a strong run, the complex corporate structures on offer may limit appetite. The En+ offering combines Deripaska's stake in Rusal with Siberian hydro-power stations, promising in theory a more efficient company that will benefit from cheap power.

That seems to have convinced Glencore Plc, which is swapping its Rusal stake for En+ shares. But others have noted that Rusal's listing may cannibalize demand for En+, especially given that some billionaire owners of the former have been dumping stock at a discount. One analyst told Bloomberg that En+ was "unlikely" to hit its top valuation range.

Painful Reshuffle
Billionaire share sales in Rusal ahead of the En+ IPO have hit share-price performance
Source: Bloomberg

Yet there may be something to all of this. Russian tycoons returning to London has symbolic resonance at least. It shows that the market still has the investors and trading volumes to match emerging-market ambitions. And it shows Brexit may be an opportunity, not just a risk, for some foreign companies.

Perhaps Russia sees a path to political influence. British lawmakers warned in February that the U.K.'s determination to punish Russia economically might hamper post-Brexit trade talks between the two countries. With all the fears about Russian meddling in elections, a few more London IPOs couldn't hurt Vladimir Putin.

Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.

With assistance from Karan Aswani.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net