January 15, 2010 / 2:26 PM / in 9 years

RUSAL IPO may lure more Russians to Hong Kong bourse

* RUSAL would be first major Russian IPO in Hong Kong

* Peter Hambro takes “great interest” in RUSAL move

* Neptune fund sees trend in Russia/China integration

By Alfred Kueppers and Robin Paxton

MOSCOW, Jan 15 (Reuters) - UC RUSAL’s planned $2.6 billion stock float in Hong Kong is likely to spur more Russian resource firms to tap Chinese markets for the investment required to bring ambitious projects into production. “I certainly don’t see it as a one-off,” Neptune Emerging Markets fund manager Ewan Thompson, who met recently with Rusal’s management, said on Friday.

“One of the things that we see as an ongoing trend is the integration of emerging markets with themselves. China is short of various key commodities and oil would be one case where we could see Hong Kong listings.”

Since the emergence of joint-stock companies and local stock exchanges in the 1990s, Russian firms have overwhelmingly favoured London as the bourse of choice for foreign listings.

However, analysts and investors say that should RUSAL’s Hong Kong offering prove a success, other Russian firms will follow as Asia’s financial clout increases.

“Russia is the biggest country in Asia, but there is very little Asian money in Russia, and I think that is going to change”, said Roland Nash, head of research at Renaissance Capital.

The investment bank is acting as an advisor to RUSAL’s planned listing and is restricted from commenting on the company.


Petropavlovsk (POG.L), which mines gold and iron ore near the Chinese border, is among the many Russian resource firms studying RUSAL’s eastern approach. The London-listed company aims to become a major supplier of raw materials to China and is investing in the first rail bridge between the two countries, which will deliver iron ore from two large mining projects across the Amur river.

Chinese firm Xuan Yuan Industrial Development Co Ltd agreed last year to supply at least 70 percent of the $375 million capital costs for the first stage of Petropavlovsk’s K&S iron project via a 10-year project finance loan. [ID:nLD551721]

“Because we have a China-facing business, and because of the relationships we are building with Chinese finances and consumers, what another Russian resource company is doing in Hong Kong is of great interest to us,” Petropavlovsk Chairman Peter Hambro told Reuters by telephone from London.

“That doesn’t imply we have any specific plans,” he said.

Sergei Men, chief executive of Hong Kong-based advisory firm Eurasia Strategics, said in December that firms from Russia, Kazakhstan and Kyrgyzstan were lining up to float shares on the Hong Kong bourse. Most of them are active in the metals sector. “Around 15 to 17 companies from Russia and the CIS are preparing documents for filing in the first and second quarters of 2010,” Men told a conference in Moscow on Dec. 11. He did not name the companies.

Kevin Dougherty, who manages more than $45 million in assets at the Pharos Russian Fund cautioned that RUSAL’s position as one of the world’s three largest aluminium producers also set it apart from other smaller Russian firms, who might struggle to attract a premium valuation.

“I am very sceptical that Russian companies who choose to list in Hong Kong would get a premium valuation over what they would receive in London,” Dougherty said.

“Chinese companies listed in Hong Kong have a premium valuation because they are Chinese companies.”

Some investors may also shy away from Hong Kong-listed Russian equities.

A recent survey of investment funds by the Royal Bank of Scotland found that 11 percent of respondents were restricted from investing in stocks listed there, while 40 percent were not especially interested in buying shares there. The remaining 49 percent said they would invest.

For a link to a Q+A on RUSAL’s IPO, see [ID:nLDE60E0I5]

Reporting by Robin Paxton and Alfred Kueppers; Editing by David Cowell

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