AIMski

AIM has become the exchange of choice for Russian companies, but how successful have they been?

In recent years more than thirty Russian companies have listed on the London Stock Exchange's (LSE: LSE) Alternative Investments Market (AIM). The resource sectors -- oil and gas, and mining -- accounted for three quarters of these listings.

Indeed, London is the preferred location for Russian companies listing abroad, and this has been attributed to Britain's less onerous regulatory regime; total costs of an IPO listing here have been estimated at about half the cost of a New York listing. The extent to which the increased bureaucracy in US serves to protect investors is hotly debated.

And protection is an important issue, as doubts have been expressed about the quality of Russian companies. While some of these doubts are company-specific, there are also concerns about the general environment in which Russian companies must operate. In 2006, Russia ranked:

• 28th out of 30 countries on Transparency International's Bribe Payers Index;
• joint 121st, along with Honduras and Rwanda, out of 163 countries on Transparency International's Corruption Index;
• 147th out of 168 countries on Reporters Without Borders Press Freedom Index.

While corruption is not exactly unheard of in Western countries, it's a question of degree -- I think it's reasonable to fear that these ratings may have some implications for the way Russian companies have to operate, and for whose benefit they are run. I was particularly intrigued by Tatneft's (NYSE: TNT) reference some years ago to the "significant informal pressures" exerted by local government -- the company then wrote off some zero-interest loans it had given to a government-owned company for "social expenditures". Hmm.

But whatever about these corporate governance issues, it has to be acknowledged that some shareholders have done very well from AIM-listed Russian companies. Investors in Imperial Energy (LSE: IEC) , for example, have seen their shares rise thirty-six-fold since flotation in 2004. Data compiled by Digitallook, however, shows nine out of thirty-four companies trading below their IPO levels.

Clearly, Russian shares offer some opportunities. But as a whole there's no certainty that Russian shares will perform so well in future, and investors need to be very selective. Proceed with caution!