Reuters

Wednesday, July 09, 2008

MOSCOW — Russia set official limits on the sale of shares in strategic and raw materials companies on foreign stock exchanges on Wednesday, expanding government control over the country's natural resources.

The new rules do not apply to companies already listed abroad, and those that already have regulatory clearance to list more stock than will be allowed.

The rules codify the Kremlin's strategy to keep strategic industries out of the hands of foreigners.

“They have completely locked down the sector,” Uralsib bank equity strategist Chris Weafer said in Moscow.

Made public on Wednesday, the rules are due to go into effect in 10 days. Companies engaged in geological exploration are subject to the tightest control and will be allowed to sell only 5 per cent of their shares abroad.

Companies in strategic industries related to national security and defence may only list 25 per cent.

Other companies in these sectors are limited to 30 per cent of their shares being traded outside Russia, down from 35 per cent.

A company with permission to trade 30 per cent of its shares abroad may trade 30 per cent of its ordinary shares and 30 per cent of its preferred shares on foreign exchanges.

The rules are aimed at getting Russian companies to raise capital at home, supporting President Dmitry Medvedev's goal to make Russia a major financial centre by 2020.

“These shares can and must trade at home,” Vladimir Milovidov, head of the Federal Financial Markets Service, told Prime Minister Vladimir Putin in a conversation televised on the Vesti news network.

“We have all the conditions in place to ensure that these shares are traded in roubles, in Russia,” he said.

Initial public offerings expected in the second half of the year are due to be mostly metals and mining companies.

Consultancy PBN estimated this week that stock offers from Russian and the former Soviet countries of the Commonwealth of Independent States are expected to reach $20-billion (U.S.) this year, largely due to a spate of metals IPOs in the second half.

The rules provide regulatory support for a law adopted in May, which listed 42 sectors where foreign investment would be capped, such as nuclear energy, natural monopolies, exploration of strategic mineral deposits, aviation and space.

Also on Wednesday, Prime Minister Vladimir Putin set up a government commission to authorize foreign investment in sensitive sectors under the law and appointed himself the commission's chairman.

A foreign company wanting to acquire a stake in a business in one of the sensitive sectors is going to have to first apply to another state agency that is yet to be established.