MegaFon's not so mega start

Gideon Spanier on a rocky debut for Arsenal-loving oligarch's telecoms giant

Alisher Usmanov is Arsenal's second-biggest shareholder, so he is used to seeing his team flatter to deceive on the pitch, after seven years without a trophy. What the Uzbek-born oligarch does with his own fortune is up to him. When it comes to persuading other investors to back his own business, that is another matter.

Mr Usmanov is under scrutiny because he has just brought MegaFon, Russia's second-largest telecoms firm, to the London stock market. The shares were priced at $20 each, at the bottom end of expectations, but they still fell 2 per cent on their debut yesterday to close at $19.60 amid lacklustre demand.

MegaFon still raised $1.7bn (£1.4bn) from the initial public offering, which saw 15 per cent of the company sold. That makes it the biggest IPO in London this year, and means the Russian company has a valuation of about $11.2bn. Corporate governance is a key reason why some City investors remain wary as Mr Usmanov continues to hold almost 56 per cent of MegaFon, which he owns through a holding company.

The worry is that MegaFon's management lacks real independence from Mr Usmanov, who made his estimated $18bn fortune through industrial interests including mining and metals. In the past, there has also been friction between the oligarch and Teliasonera, the Swedish group that still holds more than a quarter of MegaFon.

Fresh doubts about governance rose earlier this autumn, when the company's plans for its IPO were unexpectedly put on ice. MegaFon insisted the main reasons were the state of financial markets and the need to complete the integration of a recent acquisition, and said it wanted to get its third-quarter results out of the way. But it also emerged that a lead banker on the float, Goldman Sachs, had quietly pulled out.

One worry was over the status of Mr Usmanov's holding company, amid fears that other investors in it might have the power to increase control – and thus have a say over MegaFon. Those close to the telecom firm insist those concerns have been allayed because the other investors in the Usmanov holding company do not have voting rights.

A second issue was the composition of the board. Until recently, there was only one independent director, Jan Rudberg, a Scandinavian business figure. MegaFon has tried to change perceptions, last week recruiting a second independent in the form of City heavyweight Lord Myners. The Labour peer and former minister has previously chaired Marks & Spencer, Land Securities and Guardian Media Group.

Even so, independents will remain in a minority of two on the board. Mr Usmanov will have three representatives and TeliaSonera two. On the plus side, say those close to MegaFon, the oligarch does not have majority control of the board. Corporate governance standards compare favourably with other Russian companies, particularly when contrasted with rivals in the telecoms sector, insists the MegaFon camp.

However, another small episode may give UK investors pause for thought. Just as news of Lord Myners' appointment was being announced, it emerged that Mr Usmanov's personal media advisers had been rather overzealous in their efforts to burnish their client's reputation. RLM Finsbury, the top City PR firm, was forced to admit it had deleted some unfavourable references to Mr Usmanov's colourful past from his Wikipedia profile.

Despite these undoubted hiccups, MegaFon's bankers, led by Morgan Stanley and Sberbank CIB, still managed to get the float away this week. Yet City investors can be forgiven for feeling cautious, given the track record of some other foreign companies. One difference with MegaFon is that it does not have a main listing in London. British shareholders can only buy Global Depository Receipts – effectively proxy shares. That means tracker funds will not be obliged to buy the shares, and MegaFon won't enter the FTSE 100 index despite being valuable enough to do so.

Mr Usmanov knows the frustrations of being a minority shareholder in Arsenal, in which he has a 29 per cent stake. He has been complaining loudly about the team's lack of trophies under the ownership of US mogul Stan Kroenke, who holds more than two-thirds of the shares. Whether that is a good omen for investors in MegaFon remains to be seen.

Corporate issues: FTSE rows

ENRC

The FTSE 100-listed Kazakh miner was rocked by a corporate governance row after it bought a copper mine in the Democratic Republic of Congo that had been seized by the government from another mining company. Boardroom departures followed.

Kazakhmys

Critics claim that investors in the copper giant were not warned of the close ties between its management and Kazakhstan's controversial president before its London float, but Kazakhmys says it has high governance standards.

Bumi

Shares in the Indonesian coal mining firm brought to London by Nat Rothschild have slumped by about 75 per cent amid a boardroom feud and allegations of financial irregularities, sparking a huge legal row.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss