Transparency of Beneficiary
Ownership
in Russia
Julia Kochetygova
Director,
Governance Services
Standard & Poor’s
OECD Roundtable
Moscow. November 12, 2004
Specific circumstances related to
ownership transparency in Russia
• Highly concentrated ownership. Non-disclosure means material
implications regarding related party transactions
• Obvious need for protection from tax investigations (“Yukos
affair”)
• Ownership security considerations (“Yukos affair”)
• Personal security considerations
• The law does not contain the requirement to disclose beneficial
owners
• The law does not prescribe investigative powers to regulators
except anti-monopoly cases
2
Concentration of ownership
(50 largest Russian companies)
Concentration of ownership
Number of
companies
Widely held firms - largest stake less than 25%
Companies in
MC*, %
Stakes in
MC**, %
0
0
0
50
100
57
36
51
33
9
33
14
Companies with big stakes (>25%) owned by
government holdings
17
6
3
Companies with big (>25%) private stakes
30
64
40
Companies with at least one blockholder
(>25%)
of which:
Majority owned companies (>50%)
Companies with a direct government stake
(>25%)
* Share of combined market capitalization (MC) of the relevant companies in total MC of the companies.
** Share of the corresponding stakes in total MC of the companies
Source: Russian Transparecny & Disclosure Survey 2004
Copyright  Standard & Poor’s 2004
3
Concentration of ownership –
international comparisons
Country
Average size of the
largest stake, %
Russia
54
Chile
40
Germany
22
Japan
7
US
5
Sources:
Data on Russia: S&P Transparency & Disclosure Survey - 2004. 50 largest companies.
Data on other countries: S.Gillan, L.Starks. Corporate Ownership and the Role of
Institutional Investors: A Global Perspective. Journal of Applied Finance.
2003. Largest companies surveyed.
4
Copyright  Standard & Poor’s 2004
Transparency of ownership
(50 largest companies)
Concentration of ownership
Number of
companies
Companies in
MC*, %
Stakes in
MC**, %
2004
2004
2004
2003
2003
2003
Companies disclosing at least one owner
46
40
79
85
39
44
Companies disclosing ALL beneficial large
owners (>25%)
34
30
66
72
32
37
Companies disclosing ALL stakes >25%
belonging to gov-t or gov-t owned holdings
25
25
39
35
18
16
Companies disclosing ALL large (>25%)
private owners
14
9
30
39
15
21
of which:
* Share of combined market capitalization (MC) of the relevant companies in total MC of the
companies under consideration.
** Share of the corresponding stakes in total MC of the companies under consideration
Source: Russian Transparecny & Disclosure Survey; updated to reflect disclosure of Mechel in October 2004
and SUN Interbrew
Copyright  Standard & Poor’s 2004
5
Consolidated data on disclosure of
private ownership by 50 companies
Share of stakes, %
2004
2003
2002
Share of private stakes in total capitalization of
the companies under consideration
81
83
86
Share of disclosed private stakes (*) in total
private ownership
25
33
29
* controlling, blocking as well as minority stakes
•The share of disclosed private ownership in consolidated private
ownership (less free floats) – 36%
•Total value of undisclosed private ownership is $ 114 bn (As of Aug
2004)
•Value of the non-disclosed consolidated private ownership – $ 67 bn
Copyright  Standard & Poor’s 2004
6
CGSs of Russian companies and
their components
№
Ownership
structure and
influence
Financial
stakeholder rights &
relations
Financial
transparency &
information
disclosure
Board structure
and process
Company
CGS
1 Wimm-Bill-Dann
7,6
7,5
7,5
7,7
7,7
7,5
6,4
6,2
6,0
5,9
5,8
5,8
5,9
5,7
5,6
5,4
5,0
6,1
7,5
5,8
6,3
5,5
5,5
5,8
6,0
6,1
5,8
5,8
4,5
6,0
6,0
8,0
7,5
7,3
7,3
7,0
7,0
7,0
7,0
7,0
6,5
6,8
5,0
7,0
7,5
6,8
6,0
5,8
6,3
5,7
5,3
5,3
5,5
5,8
6,0
5,3
6,1
6,9
5,5
5,1
5,3
4,8
4,7
4,8
5,3
4,7
4,5
4,3
3,8
5,2
2
3
4
5
6
7
8
9
10
11
12
13
M TS
Rostelecom
Uralsviazinform
Lenenergo
North West Telecom
CenterTelecom
Dalsvyaz
VolgaTelecom
Sibirtelecom
Southern Telecom
Aeroflot
M DM -Bank
Average
Average for Sub-Comp 1.1 “Transparency of Ownership Structure” is 7.3
7
Companies having most transparent
ownership structures
Companies disclosing all large private owners (>25% or other big private stakes if
these are closely held)
Company
Baltika
WBD
Irkut
Kalina
Lukoil
MTS
Norilsk Nickel
RBC
Severstal
OMZ
MGTS
Pharmacy Chain 36,6
Sun Interbrew
Mechel
Company
MDM Bank
Sistema
Copyright  Standard & Poor’s 2004
Publicly traded companies
Number of owners disclosed
Total stake disclosed, %
1
74
11
70
11
65
2
85
3
46
2
76
2
50
3
72
1
83
4
50
2
84
4
75
2
69
2
68
Closely held companies
Number of owners disclosed
Total stake disclosed, %
2
99
1
78
8
Drivers of Transparency
Relevant companies
Key Conclusions
•Typically due to foreign listing, or request of
a foreign partner. Most often - listing of ADR
III on NYSE) or GDRs on LSE
•In connection with Russian listing (and/or
seeking foreign funds), even though Russian
exchanges do not require ownership disclosure
NYSE:, MTS, WBD, Mechel; LSE:
OMZ, LUKOIL;
foreign partners: NN
Exceptions: NYSE: VimpelCom;
NASDAQ: GTI;
RBC, Irkut, Kalina, 36,6
•Eurobond issues – disclosure by non-public
companies as well
Sistema, MDM Bank
•Disclosure initiated by the shareholders, for
their own fund-raising or reporting purposes
Baltika, SUN Interbrew, MGTS,
TNK-BP (BP only)
9
Channels of Disclosure
Relevant companies
Key Conclusions
• Listing documents or regular filings available
online (very few)
WBD, MTS, MDM Group
•Main channel: listing documents (not always
accessible due to constraining filing rules at
exchanges). Consequently, selective
disclosure, discrimination: Russian vs.
English-speaking, those included in the
mailing list
Selective disclosure: Lukoil,
OMZ; English language only:
MTS, WBD, MDM-Bank
• Isolated disclosure events (non-continuos
disclosure)
NN; (Yukos)
•Disclosure provided in an unofficial format
(comments in public interviews, etc.)
10
Aeroflot, SUEK, etc.
Still, complicated ownership
structures
Relevant companies
Key Conclusions
• Even when beneficial shareholders are
disclosed,ownership is via intermediaries
such as:
•nominee shareholders
•shell companies
•combinations of nominees and shell
companies
•cross-ownerships, treasury shares
•shareholder agreements
NN, OMZ, TMK
MDM
Irkut, Mechel, PM, Yukos
•Many cases of partial disclosure: when only
the holding entity (business group) is
disclosed, but beneficiaries are not
TNK-BP (Alfa-Access-Renova); PM
(Interros); VimpelCom and GTI (Alfa)
OMZ
WBD, MTS (disclosed)
11
Conclusions
• Companies cannot be expected to do something that
their owners are not always interested in
• Owners are not forced to support this: they have no
obligation for disclosure
• Their voluntary disclosure drives transparency
• At the same time, of the three options for obtaining
beneficial ownership and control information (OECD,
September 2002), clearly, only up-front disclosure
looks relevant for Russia
12
Whose obligation should
disclosure of beneficiaries be?
• Can companies always know their real owners?
• Do nominee owners and shell companies “own” the information
about real owners to be able to give it out?
• Is the concept “all is permitted that is not forbidden” the right
guidance?
• It is more logical to put the disclosure obligation on owners
(under a risk to be disenfranchised) – like in the U.K., U.S., New
Zealand?
• In the absence of the legal requirement for that, can this be
voluntarily imposed by company charters? Put into the Code?
• Additionally, it can be enforced by listing requirements as well
13
Solutions
• Transparency is a combination of:
– Disclosure requirements
– Strong enforcement mechanisms (investigative
power of regulators, and relevant initiation
procedures)
– Legal culture (strong judiciary system)
– Economic incentives
– Security
14