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. Last Updated: 07/27/2016

Russia May Tap U.S. Market

Russia is looking into possible issues of American Depository Receipts by its blue chip firms as a means of tapping the U.S. market for the first time in its post-communist history.


Maxim Boiko, head of the Russian Privatization Agency, said that a number of firms were considering ADRs, issued by U.S. banks to facilitate trading in foreign stocks and entitling the holder to all dividends and capital gains.


"This is bound to happen soon," Boiko said, adding that it was too early to talk about details.


Banking sources said possible ADR issuers could include Russia's giant oil producer Lukoil, state gas conglomerate Gazprom and the Far Eastern Shipping Company based in the Far Eastern port of Vladivostok.


"Privatization is moving forward. We will be seeing exciting things happening on the capital markets soon," Boiko said.


Russia's unregulated equity markets have enjoyed a steady flow of foreign portfolio investment so far this year, estimated by bankers at up to $1 billion.


This is only a fraction of the hundreds of billions of dollars sloshing around the world's emerging markets every year, but a respectable amount for Russia.


Liquidity in Russian shares remains low and transparency is non-existent at dozens of exchanges trading shares across the country. But the over-the-counter market is growing and big foreign funds are dipping their toes in the market.


Mark Mobius, the reigning king of emerging markets who runs the $280 million China World Fund, a recently-launched $120 million Vietnam Fund, as well as $5 billion in emerging markets cash for the Franklin/Templeton group, said Monday the fund was considering launching a Russia country fund.


Mobius said Templeton was looking into launching a closed-end fund worth $300-$400 million which would be listed on the New York Stock Exchange -- and eventually on the Big Board.


The fund would initially be looking at 15 blue chip Russian stocks traded and valued daily and operating in sectors such as services, hotels, telecommunications, energy and banking. Other funds in the pipeline include a closed-end one worth up to $100 million by Fleming Investment Management Limited, and another $300 million fund which will be managed by Lehman Brothers and guaranteed partially by the U.S. government agency, Overseas Private Investment Corporation.


The State Property Committee, which oversees Russia's privatization process, favors self-policing by brokers rather than heavy-handed regulation of the securities market. Moscow now has its first brokers association, the Professional Association of Participants in the Securities Market.


The association, whose members are leading licensed brokers and several banks, is drawing up a code of conduct which would be self-enforced, privatization officials said.


A joint KPMG Peat Marwick project with the Russian Securities Exchange Commission also aims to link share trading in Moscow, Vladivostok, St. Petersburg and Yekaterinburg on computer by the end of 1994.