For many years, there has been a steady stream of companies from outside the UK seeking to have their securities admitted to trading on the London Stock Exchange (LSE).  This has been such a consistent theme that it is now rarely commented upon. 

However, recently, many overseas companies seeking London listings have hailed from one country in particular: Russia.  A substantial cohort of Russian companies have secured London listings in recent years, including Mail.ru, Polyus Gold and Nomos Bank.  In 2011, equity offerings by Russian companies in London exceeded those in Russia and there are now over 70 Russian companies with shares or depositary receipts admitted to trading on the LSE. 

The listing of Russian companies in London has been undertaken despite the Russian government's attempts to develop Moscow as a global financial hub and a credible listing venue.  So, why do Russian companies not view a domestic listing as sufficient and why do they perceive London to be the listing venue of choice?

What are the options?

The domestic listing options available to Russian companies remain comparatively unattractive.  Many institutional investors have concerns about the comparative weakness of Russian listing requirements relating to director independence, disclosure, free floats and de-listing terms.  Moreover, there is no optional premium segment on the MICEX-RTS (Moscow's leading securities exchange) which Russian companies could choose to list on in order to demonstrate their commitment to strong governance standards.  Given that it is acknowledged that institutional investors will pay a premium for the securities of companies which are subject to and adhere to good corporate governance principles, many Russian companies must look to undertake a primary or secondary listing on foreign exchanges in order to enable them to demonstrate the credibility of their corporate governance practices.

Russians attracted to London

So, what it is about London that is attractive to Russian companies who are looking to list their shares on foreign exchanges?  First, they are attracted by the prospect of access to a large pool of capital from a wider range of potential investors.  As at May 2012, the combined value of shares traded in the UK was $3.3 trillion, compared with $807 billion in Russia.  These factors, complemented by the sophisticated and reliable trading platforms of the LSE (in contrast to MICEX-RTS's recent suspension of trading due to a technical issue), offer issuers increased liquidity in respect of the trading of their securities.  Moreover, a listing on the LSE can increase the profile of a company on the domestic and international markets beyond that which many other exchanges can offer.

A robust regulatory system

London also offers a robust regulatory regime backed up by the rule of law.  The Financial Services Authority is generally perceived to be a fair and effective regulator, with its primary aims to safeguard investor protection and market confidence.  However, although the regulatory regime applicable to issuers listed in London is more onerous than those applicable in many other global financial centres, it is also flexible, with issuers able to opt to join the standard or premium listing segments.  Those companies whose securities are admitted to the standard listing segment must comply with EU-wide standards relating to the initial listing and continuing obligations, whilst those admitted to the premium segment must adhere to more stringent requirements (such as meeting additional eligibility criteria and complying with the UK Corporate Governance Code, on a comply or explain basis).  Accordingly, those companies opting to list on the premium segment are able to demonstrate to investors their commitment to adhering to leading governance practices.  For those Russian issuers which list on the premium segment and who satisfy additional eligibility requirements (e.g. a 50% free float), there is also the opportunity to gain admission to the FTSE indices.  Inclusion in these indices generally leads to increased liquidity and demand for an issuer's shares from index-tracking funds and certain other institutional investors.  Russian companies Polymetal and Evraz have recently gained admission to the FTSE100 index.

Can London retain the upper hand?

However, it remains to be seen whether London will retain the upper hand.  The Russian government has stated its wish to develop Moscow into an international financial centre and has instituted reforms designed to achieve that objective, including the establishment of a new central securities depositary and enhanced insider trading laws.  MICEX-RTS has also indicated that it will create a premium segment this autumn.As previous attempted reforms have not stemmed the flow of companies looking to secure overseas listings, it is debatable whether these present reforms will enjoy greater success.  At least for the foreseeable future, London looks as if it will retain its current dominance as the listing venue of choice for Russian companies.

Kate Ball-Dodd is a partner (kball-dodd@mayerbrown.com) and Simon Allison is an associate in the corporate practice of US law firm Mayer Brown's London office sallison@mayerbrown.com