MegaFon's not so mega start

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.

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