Russian shares off to London

Russian share sales, swelled by President Vladimir Putin's plan for the largest initial public offering ever, may reach a record this year.

But for investors, most of the action will be in London.

The proposal for state-owned Rosneft, Russia's third-largest oil producer, to go public may cause sales to rise fivefold to $43.8 billion.

Companies including Comstar United Telesystems, a Moscow phone company, are taking advantage of a surging stock market by selling shares.

Russian companies are increasingly listing their shares in Britain, where there is a broader base of potential buyers and legal protections for stockholders are stronger. For Russians, the result is a less-active market and a smaller selection of stocks.

"It limits our choices in buying shares," said Oleg Larichev, who manages $1.8 billion at Troika Dialog Asset Management in Moscow.

"Russian funds can't buy Russian companies' shares abroad."

Russian companies raised a record $9 billion in share sales last year, with about $6.4 billion sold on the London Stock Exchange. The total raised this year may surge to $43.7 billion overall as Rosneft sells shares in an IPO, according to Renaissance Capital, a Moscow investment bank.

The amount sold in London will probably rise too, because Economy Minister German Gref has said the bulk of the Rosneft shares will be sold abroad, probably in Britain.

Rosneft's sale might raise $30 billion, chief executive officer Sergei Bogdanchikov said this week. The offering would be the world's largest IPO, surpassing the $27 billion sale by Japan's NTT DoCoMo in 1998.

Comstar, a telephone company founded two years ago, on February 6 sold $1.6 billion of shares in London. AFK Sistema, a holding company and Comstar's parent, sold $2.3 billion of shares a year ago in Russia's largest offering.

The Russian Trading System Index has doubled in the past year, closing at a record yesterday, as energy stocks climbed amid record oil prices. Russia is the world's No 2 oil producer.

The economy is expanding for an eighth straight year and oil revenue is raising individuals' income.

Stanislav Vartanyan, director of the Russian Investor Rights Protection Association, said Russia lacked sufficient legal protection for shareholders and did not require companies to disclose enough information to foreign investors.

Money manager Anders Ronnebaek is among those who sticks to Russian stocks listed in other countries.

"The problem is that there is no legal security that I own shares," said Ronnebaek. He is worried that records that show stock ownership can be falsified too easily, allowing thieves to claim ownership of shares.

Russia is taking steps to reassure investors and stock issuers that Moscow-traded shares are safe. Regulators this year simplified the rules for IPOs and limited the amount of shares that could be sold outside the country.

Companies now are required to offer shares on the domestic market at the same time or before a foreign sale. They are allowed to list no more than 70 per cent of the stock registered for sale on a foreign exchange.

- BLOOMBERG