The Russians are coming - in droves

A FLOOD OF Russian companies is lining up for British stock market flotations in a move that could result in London overtaking New York as the main financial hub for eastern European businesses.

The Russians' plans have come to light amid a major British drive to attract businesses seeking a primary or secondary listing in a leading overseas market to gain credibility and access to billions of pounds of Western capital. About 20 potential Russian candidates are in discussions with the London Stock Exchange, according to Charlotte Crosswell, the LSE's head of international business development.

The Exchange has been sending teams of officials to Russia in response to mounting interest in London, particularly since billionaire Roman Abramovich's £250m spending spree at Chelsea Football club. Bands of corporate advisers - from investment banks and lawyers to accountants and spin doctors - from Britain are already beating a path to Moscow and other regional centres in search of business. The British campaign will be further bolstered later this month when the CBI sends a delegation to Moscow.

Although the LSE is not disclosing the names of potential listing candidates, the Russian contingent is drawn from a wide range of industrial and consumer businesses. The companies are worth from a few hundred million pounds to several billion. ?There is huge interest in Russia for a London listing. The timing is also good as investor interest in Russia has soared and many local companies are restructuring,‘ says Crosswell.

The expected influx from Russia marks a new phase in the country's turnaround from a basket-case economy to one ranked among the world's most dynamic emerging nations. Six years ago, Russia was forced to default on £25bn of foreign loans and was considered by many to be in the grip of ?robber-barons‘ with a free run on its vast public assets.

But perceptions have changed radically. Credit rating agencies last week upgraded Russia's status to investment grade, effectively a vote of confidence in President Vladimir Putin's economic policies. The love affair with Russia today received another fillip as BP chief executive Lord Browne revealed the details of his ground-breaking £6bn investment in a Russian joint venture signed in August.

Heavy engineering group OMZ obtained a listing two weeks ago with a $250m (£149m) valuation, making it the first Russian company to list in London in two years. ?There are quite a few on the verge of listing but some may get bought out before they arrive,‘ says Mark Martin, the corporate financier from investment bank ING who shepherded OMZ to London.

He says London is likely to mount a serious challenge to New York even though the latter attracted the first wave of big Russian flotations, such as oil giant Lukoil, more than five years ago. One reason is that London is closer to home and in a similar time zone. ?The early flotations were in New York but when they put out any important news they found that the shares could not be traded immediately,‘ he says.

The City also offers an unmatched level of expertise in dealing with emerging markets and is a leading centre for mining and natural resource sectors - areas that have spawned many Russian businesses. Moreover, the regulatory climate in New York has become more onerous after a recent spate of corporate scandals such as Enron. US regulations have become increasingly rigid and the dreaded Sarbannes-Oxley Act is a particular turn-off.

However, many Russian firms must undergo sweeping restructuring before they are suitable for London. They need a three-year financial record that has been vetted under international or British accounting standards. Many Russian companies may also fall short of the corporate governance standards sought by international investors.

As the Russian firms restructure and adopt Western business practices, the pipeline of candidates is sure to increase. ?Since the 1997 financial crisis, many Russian businesses have matured and London seems to be the preferred destination for them,‘ says Stephen O'Sullivan, co-head of research at Moscow-based investment bank UFG.

However, the LSE's Crosswell has a tip for anyone about to catch a plane to Moscow: ?Don't go before you have brushed up on football,‘