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UK Sanctions Net Widens on Russian Companies

Which Russian companies have been sanctioned by the UK government, and how have Russian companies listed in London fared since war broke out?

James Gard 25 March, 2022 | 10:58AM
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Westminster Russia Protest

Russian citizens and businesses have been hit with sweeping sanctions in reaction to their country’s invasion of Ukraine.

The list of punitive measures has been co-ordinated by the US, UK, European Union and other countries, and is only likely to grow as the war progresses. The UK government updates its sanctions on individuals and "entities" daily and the full list is updated here. In this case entities includes key banks such as Sberbank and VTB Bank as well as more military focused firms like "Tactical Missiles Corporation" and "Makeyev State Missile Center". The UK added a number of entities to the list on March 23, nearly a month since the war started. Among the 26 new additions was Gazprombank, a financial firm which is owned by natural gas giant Gazprom. 

Let's look first at how the financial reaction to the war in Ukraine has affected Russian companies listed in London.

Three have a direct listing, and they are FTSE 100 steelmaker Evraz (EVR) and gold miner Polymetal (POLY) and the FTSE 250’s Petropavlosk (POG). Shareholder value has been shrinking at these companies since the war broke out, although there have been a number of daily rallies. FTSE Russell confirmed in early March that Evraz and Polymetal were to leave the FTSE 100 to join the FTSE 250 and Petropavlosk was to be relegated from the FTSE 250. Then on March 15, FTSE Russell said that these companies will be removed from the FTSE indices in the week beginning March 21 because of a lack of trading liquidity. 

The group has received feedback from partners that the "ability to buy or sell shares of the index constituents below is severely restricted due to major international brokerage firms no longer supporting trading of these securities and therefore there is insufficient institutional liquidity and market depth". 

"Consequently, this will prevent index trackers from replicating the ongoing inclusion of these names within the FTSE Russell indices," FTSE Russell said.

Chelsea Football Club owner Roman Abramovich, who has a sizeable stake in Evraz, was added to the sanctions list on Thursday March 10 and Evraz shares were suspended on the same day.

More than a month since the war started, Petropavlosk and Petropavlosk shares are still trading on the London Stock Exchange but are nursing serious losses in 2022. Petropavlosk shares took another leg downward at the end of March because of Gazprombank's inclusion on the sanctions list. The bank had previously been a committed buyer of the gold mined by Petropavlosk, but now is unable to do this.

"The miner must now find a new taker for its precious metal. That’s going to be difficult in the current environment," says AJ Bell investment director Russ Mould.

This example shows the Russian's intricate web of connections and how the West is trying to disrupt it via the financial system.

GDRs and ADRs

Then there are the Russian companies with shares classed as Global Depository Receipts (GDR) and American Depository Receipts (ADR). These allow foreign investors to buy overseas companies that are listed on their home exchanges. For example, the UK’s Shell (SHEL) is available to buy in New York as an ADR if US investors want to buy it in dollars.

Among these GDRs, VTB Bank (VTBR) has have been placed under the UK sanctions regime, and its shares have been suspended. Russian state-owned Sberbank (SBER) was added to the UK sanctions list on Monday, March 7, and has now been suspended, having lost more than 99% of its value in 2022. EN+ was suspended on March 2 by the London Stock Exchange, meaning all the GDR and ADR stocks are now suspended.

Morningstar has approached the London Stock Exchange, HM Treasury and the Foreign, Commonwealth and Development Office for comment.

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James Gard

James Gard  is senior editor for Morningstar.co.uk

 

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