Listings Abroad Face New Curbs

New rules will slash the percentage of shares Russian energy and mining companies can sell on stock exchanges abroad and impose less severe restrictions on other companies, the Federal Service for Financial Markets announced Wednesday.

The regulations will bolster the government's twin aims of securing domestic control over the country's strategic sectors and transforming Moscow into a major financial center over the next decade.

Russian firms involved in the large-scale extraction of oil, gas and metals will from now on face a stringent 5 percent limit, a radical cut from the current blanket level of 35 percent for all companies for listing abroad. The new cap for companies working in other strategic sectors will be 25 percent.

All other companies looking to list shares abroad will now have to cope with a 30 percent limit, once the new regulations come into effect in 10 days.

"This is a significant move," said Yelena Krasnitskaya, a corporate governance analyst at Troika Dialog. "The rules follow the party line — the state wants to play the main role in the strategic companies."

The news is positive for domestic bourses but could potentially be bad news for Russian companies looking to float new depositary receipts abroad, Krasnitskaya said.

Firms that have already made placements or received approval to float will not be affected by the new rules.

But coming hot on the heels of the approval in May of strategic sectors legislation, outlining which parts of the economy are off-limits for foreigner investors, the markets are unlikely to panic at the news. "Investors swallowed that bullet, and I don't expect a massive reaction on the markets," Krasnitskaya said. "I wouldn't overestimate the dramatic consequences of these rules."

President Dmitry Medvedev and his predecessor, now-Prime Minister Vladimir Putin, have pledged to turn the country into a leading financial hub over the next few years and these rules will help boost the liquidity of Russia's domestic markets.

At a televised meeting with Putin on Wednesday, Federal Service for Financial Markets chief Vladimir Milovidov insisted that shares in Russian companies can and should be traded on domestic markets. "We have all the conditions in place to ensure that these shares are traded in rubles, in Russia," he said.

Given the growth of Russian markets in recent years, some investors agreed with Putin's assessment that Moscow could soon become a financial hub. "A few years ago, it'd be a good day if $50 million were traded in a day. Now that amount is traded in one second," Ryan Dodd, partner at DBM Capital Partners, a fund that focuses on precious metals.

After a slow start to the year for Russian initial public offerings, some argued that these rules could put dampeners on IPOs being considered. "In the short term it will have no effect, but in the medium term it could slow down the pace of the IPO pipeline," said Chris Weafer, chief analyst at UralSib.

A secondary placement of preferred shares planned by Mechel will go ahead unaffected, Reuters reported, citing sources close to the offering.

Despite fears that, given the current global liquidity squeeze, further caps on Russian companies could damage their prospects of attracting investment, Russian markets are able to take up the slack, Krasnitskaya said. "There is enough liquidity in Russia — the domestic market is deep enough," she said.

Although in the long term this could help turn Moscow into a major financial center, over the next few years companies could face problems attracting foreign investors, concerned over the lack of long-term liquidity and proper legislation on Russian markets, Weafer said.

"This is the stick part, and the carrot is missing," he said.

Staff Writer Miriam Elder contributed to this report.