Should Evraz Have Been Suspended?

The listing of shares in Evraz (EVR) have been suspended so all trading is barred. They were not suspended at the request of the company which is the more common circumstance but at the behest of the Financial Conduct Authority. The suggestion is that this was to protect investors pending clarification of the impact of the UK sanctions.

But the suspension of shares should in my view be an action of last resort. The suspension of shares is enormously damaging to investors because they are then locked in, and such suspensions can last a very long time. Investors may have borrowed cash to purchase the shares and then can’t get out.

Similar problems are affecting other Russia-linked firms such as Polymetal, Petropavlovsk and Raven Property as they are deleted from FTSE indexes and it is reported that brokers are refusing to trade their shares.

EVRAZ is a vertically integrated steel, mining and vanadium business with operations in Russia, the United States, Canada, the Czech Republic and Kazakhstan. EVRAZ is one of the top steel producers in the world based on crude steel production of 13.6 million tonnes in 2020. Picture above is of one of their steel mills from their annual report.

It is a UK registered company but Roman Abramovich owns 29% of the shares and allegedly has close links with Vladimir Putin, although he denies that. The BBC recently ran a programme which did a hatchet job on his reputation and alleged he acquired his wealth by fraud. Without going into the accuracy of those reports, it does seem to me that sanctions are being imposed on political grounds in an extra judicial process.

I think few people might question the imposition of sanctions on individuals who are linked to the Russian regime. But the problem is Evraz has a wide shareholder base. That includes many private shareholders. According to an Investors Chronicle article, they said AJ Bell had revealed that shares in Evraz and Polymetal were its two most bought shares over the past week. With both stocks plunging more than 80% year to date, this has led some to buy in as an opportunity to reap dividend payments potentially higher than the cost of the shares. However dividends have been suspended at Evraz.

The suspension of shares in Evraz might harm Abramovitch and his Russian friends but it will also damage the interests of other innocent people. This is not reasonable.

Evraz is clearly in a difficult financial position as the company will suffer from sanctions and all the non-executive directors have now resigned. Is that justification for halting trading in the shares? I am not convinced it is.

Companies can rightly, in my view, request suspension of their shares when past accounts are shown to be dubious – for example because of discovered frauds. This is to give time for the company to report what it knows and ensure all shareholders are aware of the issue before the listing is reinstated.

But simple doubts about the future prospects of the company should not be a sufficient justification for suspending a listing. I recall the example of Northern Rock where it got into financial difficulties and there was a run on the bank. It was running out of cash and there was a threat of nationalisation, but the shares were not suspended. It was only delisted when nationalisation took place.

It does seem to me that ShareSoc, which represents private shareholders, should take up this issue and request that the listing be reinstated as soon as possible. And the FCA should establish clear rules about when a listing should be suspended.

A suspended share listing can create enormous problems for investors. For example, if they have borrowed to buy the shares, or are trying to act as executor for an investor. Valuing the shares for probate is very difficult and there is no way to realise the value to pay IHT.

Mixing politics (the attack on all things Russian) with finance is a very bad idea.

For the avoidance of doubt, please note I have no interest in the shares of Evraz or any other Russian linked companies.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added.