By John Helmer, Moscow
The Russian state bank VTB has corroborated its role in managing a complicated set of loans, insider transfers and repurchase agreements for Oleg Deripaska’s aluminium and electricity holding, EN+, which issued global depositary receipts on the London Stock Exchange last week. Since the listing, the Russian group has lost $140 million in market capitalization. An international banker in London commented that the listing “breaks new ground, not to say exchange rules, for a share that isn’t a share and for a free float that isn’t either.”
In an email from VTB’s London spokesman Hudson Sandler, the bank said “VTB did not lead [the initial public offering], but were simply participants.”
Left: Hudson Sandler website; right, chief executive Andrew Hayes, Source: http://hudsonsandler.com/who-we-are 
“A key addition to Hudson Sandler’s portfolio of Russian and financial services clients, ” Andrew Hayes, the firm’s chief executive, said at the time. Hudson Sandler’s other Russian clientele includes the state sovereign wealth fund, Russian Direct Investment Fund (RDIF), the steel oligarchs Dmitry Pumpyansky (TMK) and Alexei Mordashov (Severstal); Suleiman Kerimov (Polyus Gold) and Ziyavudin Magomedov (Summa Group); the state diamond monopoly Alrosa; state oil company Gazpromneft; the petrochemical combine, Sibur, and the oilfield services company, Eurasia Drilling Company. At the moment, no London spokesman speaks for so many Russian state interests.
In addition, Hudson Sandler promotes the Ukrainian Government’s pitch for foreign investment, claiming on the firm’s website in July: “At Hudson Sandler, we were encouraged… that there are the beginnings of renewed, albeit very selective, investment interest in the country…Ukraine has made more progress since its Revolution of Dignity in 2014 than in the whole period up till then since it became independent 26 years ago.” It is undisclosed whether Hudson Sandler was paid for this by the Ukrainian trade ministry or Soft Serve, a Ukrainian IT company.
John Merva is the Hudson Sandler agent for VTB. The report of VTB’s role in EN+’s initial public offering in London was published on Monday morning in Moscow. Read it here . Nakedcapitalism.com, the New York-based leader in investigative reporting on business, followed with commentary by editor Yves Smith (right), on Tuesday; click to open .
Through Hudson Sandler VTB reacted, sending this email to Naked Capitalism:
Smith responded to Merva: “based on the information you provided, I see no reason for a correction. My site is a finance and economics website and I myself worked in the corporate finance department (equity and bond underwriting) of Goldman Sachs. I am very familiar with the book-running process, the roles of deal managers, the various fees paid in underwritings, as well as the fact that the split of fees is very different that the division of risk (underwriting exposure). More specifically, unless the deal was a failed underwriting (as in the syndicate members were unable to sell out the underwriting), their role is irrelevant to who bore the losses when the EN+ traded down. The losses were borne by the investors.”
“So unless you can provide me with evidence that VTB was not a shareholder after the syndicate was broken and the shares were free to trade, the article is accurate as written. ‘Led’ in context means VTB was the largest of the end buyers. If that is not accurate, I will consider an update. But your discussion of the lead managers and underwriters is not germane.”
I followed with this request to Merva: “Before publishing as VTB’s response to the report, I should like to clarify whether VTB finds any other error of fact or interpretation in the report. I should also like to clarify whether it is the policy of VTB’s press office not to respond directly to our questions, when we ask them, but to oblige me to put our questions to you. This is not the policy of your other Russian clients — Severstal, TMK, Polyus, and the Russian Direct Investment Fund (RDIF). May I also ask you to confirm what RDIF spent on its purchase of EN+ shares and how many shares it purchased?”
As we go to press, neither VTB’s press office nor Hudson Sandler has replied.
Meantime, according to the London Stock Exchange’s trading data for Tuesday, EN+ continued to lose market capitalization as the share price fell to a new low of $12.75 in the mid-afternoon. Price support then provided a partial recovery.
EN+ SHARE PRICE IN TUESDAY TRADING ON THE LONDON STOCK EXCHANGE