Leading article: A flotation that tarnishes the image of all involved

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The Independent Online

The Russian state oil company, Rosneft, has announced that it is going ahead with its flotation on the London Stock Exchange. It hopes to raise more than $10bn, implying a value for the company of $70bn. The projected date is somewhere immediately before or after the Group of Eight summit, which Russia will host in St Petersburg in mid-July. The two events are not unconnected: they both relate to Russia's search for international respect and approbation.

Russia regards the London Stock Exchange as the standard of international acceptability. To be listed on the London Stock Exchange amounts to a validation: Russian companies see it as the ultimate proof that they are on a par with their competitors elsewhere in the world. Regrettably, we have to ask whether the City of London takes its position as guardian of international standards quite as seriously as those companies, not only Russian, which crave its imprimatur.

With Rosneft, there are surely grounds for asking whether the London Stock Exchange and the Financial Services Authority (FSA) should have been more circumspect than they have been. How rigorously have the company's standards really been investigated? There must be no question of a free pass for Russian energy companies to international respectability just because the Western world so badly needs what they can supply. Yet the number of City snouts already in the trough of this flotation suggests that something of the kind is exactly what is going on.

Simply by being able to announce its flotation, Rosneft creates the impression that it already conforms to the most demanding international norms in terms of reporting, accounting and the rest, even though there is scant evidence to that effect. Indeed, there are grounds for asking whether, even at this late stage, Rosneft, in its present composition, should be permitted to float on the London Stock Exchange at all.

This is not because its biggest shareholder is the Russian state - other Russian companies have floated successfully on the London Stock Exchange. It is because a significant part of its value is seen as derived from what are widely seen as ill-gotten gains, namely the Yugansk oil and gas company that Rosneft acquired in the fire sale of Yukos assets following the arrest and imprisonment of Mikhail Khodorkovsky.

The sources of much of today's Russian wealth are profoundly dubious. Few big energy concerns would emerge with much honour if the deals of the Nineties had been examined as closely as perhaps they should have been. The collapse of Yukos, however, is a particularly egregious case of a company brought down essentially for political reasons. Its demise was doubly unfortunate because, unusually among Russian oligarchs, Mr Khodorkovsky had been making efforts to bring the corporate governance of Yukos up to international standards.

What remains of Yukos has applied to the FSA to halt the Rosneft flotation, claiming that the sale is essentially one of stolen goods. It is also suing Rosneft in Moscow. Rosneft, for its part, has warned potential investors that they could face liability lawsuits. This is one reason for caution over the Rosneft flotation. Others are the continuing fall in price of shares in emerging markets and the questions of transparency that still hang over Rosneft.

In the end, it must be for the market to give its verdict. And with Rosneft, the customary warning "buyer beware" sounds loud and clear. In this case, though, the warning must be extended also to those who assist the sale. The City of London must understand that it risks lowering its own value by association.