(Forbes) – Russian businessman Oleg Deripaska is finally getting his wish: his En+ Group will list on the London Stock Exchange. Even in a hyper-liquid market, the fact that this stock is unlikely to be oversubscribed speaks volumes. In a rare moment of camaraderie between greedy Wall Street-types and green activists, both agree that the company has serious corporate governance issues.
En+Group is one part Rusal, Russia’s largest aluminum producer, and one part En+ Power, owners of some of Russia’s biggest hydroelectric dams. The company said in October that it would use the proceeds, in part, to pay for Rusal debt. Rusal is listed on the Hong Kong Exchange and has a 5.5% dividend yield. With En+, investors are getting more cash for more dividend flow.
“I did a little in-house exercise and by my math, I get a 6.25% dividend with En+ Group, but I can do better with less risky stocks,” says Alexey Klaptsov, a fund manager for the Specialized Research and Investment Group, or SPRING, a Moscow-based hedge fund. “Sure, 6.25% is nice, but I don’t see all that much upside because it is not in the indexes. I won’t get any support from the ETFs. I won’t participate in this IPO.”
VanEck Global, owners of the biggest Russian exchange-traded funds, also said that they would not participate in the IPO for the simple reason that neither Rusal nor En+ Group are part of the index their funds track.
Deripaska likes to remain behind the scenes. Rarely does he even speak about Rusal or En+ in the press. Perhaps his low profile is kept for a good reason. He is considered somewhat toxic by many. His name has been bantered around with the likes of Paul Manafort, President Trump’s former campaign advisor caught up in a Russia-Ukraine scandal of his own making. Manafort was recently indicted, the first shoe to drop on the special counsel investigation in Russian relations with Trump campaign officials.
Earlier last month, international environmental group Rivers Without Borders sent an letter to the LSE addressed to its chairman, Donald Brydon; the CEO of the U.K. Financial Conduct Authority, Andrew Bailey; and to En+ Group’s chairman, a British Lord brought in for good measure, Conservative Party politician George Barker, in which they warned investors about what they said was corporate disclosure shortfalls.
“We believe that the IPO process must be adjusted to incentivize significant improvements in their policies and practices on environmental and social responsibility related governance issues,” wrote Eugene Simonov, director of Rivers Without Borders International in Russia. “We believe that unless recognized, disclosed and properly managed, the environmental and social risks associated with operations of En+ Group industries may result in substantial material losses and under-performance.”
The market definitely agrees about corporate governance and name-brand risk associated with Deripaska. Although he is not sanctioned by the U.S. or Europe, the recent Manafort indictment scares some.
On Thursday, the Financial Times quoted an off record fund manager saying the valuation of En+Group is “twice what it should be. They should have a discount for Russia, a discount for the leverage, and they should absolutely have a discount for corporate governance.”
Book runners struggled to elevator pitch En+Group to me last week, only saying that it was a way to hedge against Rusal’s aluminum risks, and was a nice dividend play. One tried to tell me about how Rusal would benefit from electric vehicles that need its super cheap aluminum. The only problem is, Rusal is already publicly traded. Why not just buy that instead?
En+ Group expects to raise a total of $1.5 billion through the sale of new and existing shares in both London and Moscow. Pricing will be known to U.S. investors on Friday morning.
Reuters reported yesterday that the order book was fully covered for all the shares being sold, but not including a so-called green-shoe option where more stock can be sold in the case of over-subscription.
En+Group likes to bill itself as a clean producer of aluminum because most of its energy is derived from its own hydroelectric dams. Activists like Simonov say that some of those rivers are important to Russia’s Lake Baikal, a UNESCO World Heritage Site in Siberia. Despite Simonov’s environmental concerns, in a hot market that is generally cool on this deal, it will be a surprise if Deripaska gets the money he is hoping for when En+Group launches on the LSE.