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By John Helmer in Moscow

Transcontainer, the state-owned Russian Railways box transport company, has revealed that it will not list shares in its initial public offering on the Hong Kong Stock Exchange.

The announcement confirms that for state-owned shares, the Kremlin sees little value, and considerable risk, in associating with the Hong Kong Exchange (HKEx). The Transcontainer IPO plan, which is being managed by JP Morgan and Morgan Stanley, also reveals that in the investment markets for Russian shares, Hong Kong is regarded as the market of last resort for Russian companies unable to meet the disclosure requirements, governance tests, and investor risks that prevail in London, New York, Paris, and Frankfurt.

In 2006 Transcontainer was spun out of Russian Railways (RZhD), the heir to the Soviet railways leviathan. Its chief executive is a railwayman, Petr Baskakov; the chairman of the board is Dmitry Novikov. The latter is a finance specialist who used to run Alrosa, the diamond miner, before being recruited by RZhD boss, Vlkadimir Yakunin, to direct the railways’ borrowing and asset divestment lines of business. David Hexter is a member of the board, and Transcontainer’s link to the EBRD, where Hexter worked for several years.

Transcontainer now claims to be Russia’s largest rail freight container operator, managing a fleet of 60,000 ISO boxes, and over 24,000 specialized flatcars. Only the parent RZhD is bigger in terms of the number container terminals it is operating at the moment.

On Friday, Transcontainer issued an announcement that it wants to sell 5.6 million state-owned shares, making a 40% float of the company, for a target price of Rb12.8 billion ($412 million).

The EBRD’s annual report for 2007 says that the London institution had taken a significant shareholding in the company, but there are no details in EBRD’s reports and releases. Transcontainer says it held a private placement of shares in late 2007, when the EBRD bought 9.25%, and the investment funds Moore Capital Management GLG Emerging Markets Fund bought 2.5% each, and Troika Dialog Investments Ltd bought 0.75%.” With this distribution, the proposed IPO will have the effect of reducing state control of the company to less than a majority.

Yury Humber of Bloomberg reported in April that Russian confidence in the Hong Kong Stock Exchange was rising rapidly in the wake of United Company Rusal’s listing on January 27 – the first Russian company to list in this market. According to his claim, Transcontainer was headed for a listing in Hong Kong, along with Polyus Gold. “With Hong Kong as the international hub in Asia, it’s pretty much the only real option,” Humber quoted a Polyus Gold executive as saying.

Dmitry Yesipov, a spokesman for Transcontainer, was asked to confirm the rejection of Hong Kong for the listing. “This is true. The opportunity of listing at the Hong Kong Stock Exchange has been hypothetical…However, after weighing all the pros and cons, the selling shareholders chose the above mentioned grounds.[London and Moscow].”

Polyus Gold, which has been listed on the London Alternative Investment Market (AIM), had been hoping for a main board listing after a reverse merger and takeover of another London-listed junior from Kazakhstan, Kazakh Gold. However, that transaction has collapsed in recriminations over the disappearance of at least $220 million in Kazakh shareholder funds; London litigation by Polyus Gold against former Kazakh Gold shareholders; and threats by the Kazakhstan government to revoke Polyus Gold’s claims to licences. Polyus Gold’s current share price is down 13% over the past three months.

The only other Russian company to attempt to list in Hong Kong is another spinoff from the Petropavlovsk gold company called IRC Ltd. It was approved for listing by the Exchange and issued its public prospectus on September 21.

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