Labour has called on ministers to stiffen the scrutiny and regulation of City flotations as a matter of urgency following the controversial $7bn (£5bn) London flotation of En+, a Russian metals group monitored by oligarch Oleg Deripaska.
The shadow chancellor, John McDonnell, called on the chancellor, Philip Hammond, to introduce serious measures against oligarchs and consider “tightening initial considerations around listings” after the US said it would introduce economic sanctions against the Russian billionaire.
Deripaska offered on Friday to reduce his stake in En+ to below 50% in an attempt to prevent the newly imposed sanctions from affecting the company, whose shares have plunged since the flotation as Russia’s relations with the west have deteriorated since the poisoning of Sergei and Yulia Skripal.
Some UK politicians are concerned as to why the flotation was allowed to go ahead in the first place. McDonnell was joined by the Liberal Democrat leader, Vince Cable, who said there should be an inquiry into why En+ was allowed to float in a deal that earned banks, lawyers, auditors and PR firms £25m in fees.
Cable said it was “very odd that we will follow Trump into military action, but won’t join in imposing tough sanctions on oligarchs”. On the En+ listing, he said: “There should be a review of this flotation. When Russian oligarchs are using the London markets to raise money we must take a strict line on scrutiny.”
Six banks shared an estimated half of the £25m with the largest share taken by the lead bookrunner, Bank of America Merrill Lynch. Citigroup, Credit Suisse, JP Morgan and Russian banks Sberbank and VTB Capital would have shared the rest. The remainder was to be shared by lawyers including Linklaters and White & Case with smaller auditors KPMG and financial PR specialists Finsbury.
En+ is a holding company for Deripaska’s metal and energy interests. He built his business empire during Russia’s so-called aluminium wars following the post-Soviet privatisations of the 1990s. It floated in London last November, raising $1bn which was used to pay back borrowings owed to VTB, a bank prevented by sanctions from raising capital in the EU and the US.
The City regulator, the Financial Conduct Authority (FCA), approved the flotation, but a fortnight ago Deripaska was one of 38 Russian business leaders the US Treasury targeted because of “malign activity” on the part of Vladimir Putin’s government.
En+’s share price tumbled as a result, and the stock is now priced at $6, less than half the $14 flotation price. A string of independent directors have resigned although the company’s chairman, the former Conservative minister Lord Barker of Battle, remains the firm’s figurehead. Finsbury no longer advises En+, saying its mandate only extended to the listing.
Barker persuaded Deripaska to cut his stake according to a statement released on Friday, as part of efforts to protect investor interests. “Following a series of discussions with the company’s independent chairman, Lord Barker of Battle, Mr Oleg Deripaska has agreed in principle to the chairman’s request that Mr Deripaska reduce his shareholding in the Company to below 50%,” En+ said in a regulatory filing.
The US Treasury cited Russia’s support for Syria’s president, Bashar al-Assad, malicious cyber activities, the occupation of Crimea and support for violence in eastern Ukraine as its reasoning for putting the sanctions in place. They were already in preparation when the UK accused Putin’s government of being behind the poisoning of the Skripals in Salisbury.
At the time, Deripaska described the decision to impose sanctions as “very unfortunate but not unexpected”. “Certainly the grounds for putting my name on the list of SDNs [specially designated nationals] as provided by US officials are groundless, ridiculous and absurd,” he said.
An FCA spokesperson said the regulator had responded to the Trump administration’s action by delisting a class of En+ shares aimed at US citizens, but that it had no plans to take any further action because the British government had not asked it to.
Deripaska is one of Russia’s best connected international businessmen. Paul Manafort, the former head of Donald Trump’s election campaign who is fighting fraud and tax charges brought by special counsel Robert Mueller, worked for Deripaska for many years.
Criticising the British failure to follow the US example, McDonnell said: “The City of London cannot risk to be seen as a light touch when it comes to imposing effective sanctions on Russia and clamping down on foreign oligarchs linked to the regime. In this case, it looks like once again we have been playing catch-up with regulators in other countries.”
EN+ did not respond to a request for comment.