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. Last Updated: 07/27/2016

Vasilyev Gives Blue Chips Low Marks

Some Russian companies may be hot picks for market gamblers, but not for Dmitry Vasilyev.

The former chairman of the Federal Securities Commission said Thursday that few of Russia's blue chip stocks -- particularly cash-rich oil giants -- are among the companies he would advise investors to pick because of their corporate governance policies.

Vasilyev, who heads the Institute for Corporate Law and Corporate Governance, presented to reporters a revised list of ratings of Russian companies based on their treatment of minority shareholders. The institute sells the ratings to foreign investors.

At the bottom of the 24-company CORE rating list are GAZ, Aeroflot, Uralsvyazinform, LUKoil and Kubanelektrosvyaz. Surgutneftegaz, Tatneft and Yukos are also near the bottom, in 17th to 19th places, respectively.

All of the companies had been placed near the bottom in the previous ranking, released at the start of the year.

Yukos, which has been praised by brokerage analysts for improving its once-tainted corporate governance image, got low marks for not disclosing its capital structure and practicing transfer pricing and asset stripping, Vasilyev said.

The absence of minority shareholders on the board and excessive control on the part of the management are reasons why LUKoil, Tatneft and Surgutneftegaz scored poorly, he said.

Another company that comes highly recommended by brokers is Severstal. Vasilyev gave it 13th place. The reason: Minority shareholders are not represented on the board of directors.

At the top of the CORE list as companies with good corporate governance are Vimpelcom, GUM, Lenergo, Petersburg Telephone Network and Unified Energy Systems.

The first four companies were previously in the top five, with UES being the newcomer, moving up to fifth from 12th place.

CORE Ratings as of July 1

Ranking Company
1 (1) Vimpelcom
2 (2) Gum Trading House
3 (3-4) Lenenergo
4 (5) Petersburg Telephone Network
5 (12) UES
20 (20-21) Kubanelektosvyaz
21-22 (20-21) LUKoil
21-22 (10-11) Uralsvyazinform
23 (15) Aeroflot
24 (23) GAZ
Knocked down from third to fourth place was Irkutskenergo, which Vasilyev said was failing to disclose financial information and improperly conducting shareholders meetings. Also, the board's independent director was not re-elected earlier this year.

Vasiliyev on Thursday defended his institute's ratings, saying a company's healthy financial performance does nothing to lower potential risks for minority investors.

One of Vasiliyev's main drives is to get independent directors placed on company boards.

Yulia Kochetygova, who is in charge of corporate governance ratings at Standard & Poor's, pointed out that independent directors do not always improve a company's corporate governance standards when they are in the minority.

"They sometimes have little influence on the board," she said.

She agreed that leading companies are far from perfect in abiding with international corporate governance standards.

"Sometimes a company adopts a corporate governance code just to convince the market that it has no problem with such a policy," she said.

Vasilyev unveiled his new ratings list just days after his former domain, the Federal Securities Commission, presented its own draft corporate governance code.

Vasilyev said the adoption of the code would be good news for the market, especially because the draft code was concise and contained recommendations rather than instructions.

He offered mild criticism of some parts of the draft, such as a clause demanding that all investors in a company be present at shareholders meetings at the location where the company is registered. Demanding that all shareholders gather at what could well turn out to be a remote location is ridiculous, he said.