Streetwise Professor

December 23, 2009


Filed under: Commodities,Politics,Russia — The Professor @ 6:07 pm

Why is it that everything involving Russian business, and especially Oleg Deripaska, is murky beyond belief.  In a battle of leaks with Reuters, Bloomberg reports that the Hong Kong Stock Exchange has approved a $2 billion Rusal IPO.  Supposedly, however, the exchange imposed an unprecedented condition: that retail investors not be permitted to buy shares.  But the Hong Kong securities regulator says that such a constraint is not permissible under the law.  It also makes no sense.  Even if they can’t buy at the IPO, what’s to prevent them from buying in the secondary market.  Thus, the constraint would not protect retail investors.

John Helmer reports that there has been no formal announcement of the listing approval under the official protocols (i.e., a posting on the HKEx website).  Moreover, exchange officials have been dodging questions.  Thus, it is by no means clear that the IPO has truly been approved.

One can only imagine the pressure the exchange and the Hong Kong regulator is under.  And not from Russia only, but also from the big banks who are into Rusal for big money and desperate to get paid off from the proceeds of an IPO.

At the same time, the exchange and the regulator have to realize that Rusal, Deripaska, and Russia are poison, poison, poison.  You know that based on the merits–or more accurately, the demerits–of Rusal as a business and Deripaska as a businessman, there is no way an IPO should go forward.  This is especially true given the legal cloud Rusal and Deripaska are under in London, given a lawsuit filed by  Mikhail Chernoy that is bearing down relentlessly.

It will be very interesting indeed to see whether the exchange drinks the poison.  The most sensible explanation to what is going on is that Rusal leaked the story of the approval to put pressure on the exchange.  The exchange is also under pressure from the banks to go forward, and from the Russian government.  But the exchange really wants nothing to do with it.  Perhaps it is trying to stall, hoping that other developments, most notably the Chernoy suit, will make it necessary for Rusal to withdraw the application.  Good luck with that.

This is a very interesting case study in self-regulation (a subject I wrote a good deal about in the ’90s).   There are important members of the HKEx who have a vested interest in the IPO going forward.  There are others who would not benefit from this, but who would suffer from the inevitable damage to the exchange’s reputation.  It will be quite fascinating which faction will prevail.

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  1. How will the banks ensure that the IPO will be a success? Whom will they place the shares with? Logic mandates that if the offering is so poisonous there would be no willing drinkers… But from what u seem to imply looks as though the banks can pressure some parties to buy this stuff. Would like to know how that is done….

    Comment by Surya — December 24, 2009 @ 12:34 am

  2. Surya–A big chunk will be bought by VEB (3 pct of the total shares, which is 30 percent of those in the IPO) and Sberbank. So, in some respects this is a crypto-nationalization.

    The ProfessorComment by The Professor — December 24, 2009 @ 10:04 am

  3. “Why is it that everything involving Russian business, and especially Oleg Deripaska, is murky beyond belief.”

    That’s easy! Because behind every Russian transaction lies a Russian person, two-thirds of whom “voted” to be led by a proud KGB spy.

    Comment by La Russophobe — December 28, 2009 @ 4:30 pm

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