Guiding Lines: Sham Transparency

The first Russian developer to go public was Otkrytyye Investitsii (Open Investments) company, an affiliate of Interros Group. In November 2004, the company sold a 38.5% stake on RTS stock exchange for $68.8 million; in the fall of 2006 it floated additional shares and raised $880 million. Only recently first western investment funds arrived in Russia having raised cash for development of warehouses, office and retail properties. Those were Eastern Property Holdings, Meinl European Land, Raven Russia and others. In November 2006 the domestic market witnessed a landmark event when Sistema Hals successfully floated 17% of its shares on the London Stock Exchange (LSE) and raised $432 million. Mirland Development, RGI International, World Trade Center (Tsentr Mezhdunarodnoi Torgovli) and other companies followed Sistema Hals's example.

A public company is required to disclose information on its operations, proceeding not merely from its corporate interests, as for example, some things will be disclosed, while others won't. Information on each and every deal, even the most insignificant one, must be made public. In other words, such information must be available to the public, as well as shareholders.

The emergence of public companies in any sector of the economy, construction industry being no exception, is, of course, a positive sign. This proves only that the market begins, if slowly, to open up.

This is at least how things should be in practice. In actual fact once their shares are floated Russian public companies turn into “unassailable fortresses”. This is not about a "quiet period” between submitting a prospectus to regulatory bodies and its registration, during which a company is legally not allowed to divulge any information about its operations. Unfortunately, in the case of Russian developers this quiet spell may last for years.

After all, it is not for nothing that journalists have dubbed the Open Investments company as “Closed Investments”. Even at news conferences reporters fail to obtain at least one articulate commentary from that company over the past twelve months. For example, at some point the company was reported to have issued a $165 million loan to the firm Blauenlaumer Technologies Limited. But obtaining any detailed data on the deal proved impossible. No explanations were given as to who Blauenlaumer Technologies Limited are, why namely this firm and for what purpose was granted a loan.

The situation with the upscale housing developer RGI International is similar. Given the specifics of prime housing market companies such as RGI a priori cannot be open to the public. It is clear that the company is reluctant to let journalists know that one of its construction sites comprises a car park and car wash facilities, situated within a 400-meter distance from the banks of the Moscow River, and although all permissions from the government bodies have been obtained the risk remains that those permissions may be cancelled. At least, in a move that commands respect, the company has admitted that fact to its investors.

There are other examples, as well. The company Africa Israel Investments, based in Israel and in Moscow, advises reporters calling its Israeli offices, to call the company’s office in Moscow, and those who call Moscow are advised to call the office in Israel. These days, the group of Lev Levayev is set to list its Russian assets on stock exchange. Whom journalists will be advised to call now is hard to imagine. Mirland Development, owned by Israel's Fishman Group, floated its shares on the LSE in December 2006 and raised $282 million to be spent on property development in Russia. In press-releases published on the LSE web-site the company provided a phone number of its representative who is never available for comment; a report posted on March 16, 2007 contained a phone number lacking one digit. And this – in an official document that undoubtedly was thoroughly checked several times. Perhaps, those errors were inadvertent mistakes, but somehow it is hard to believe it.

Yet, should a journalist make a mistake their phones are switched on immediately and commentators appear. Perhaps, this is the only way to make them talk...