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Vasilyev Gives Blue Chips Low Marks

Some Russian companies may be hot picks for market gamblers, but not for Dmitry Vasilyev.

The former chairman of the Federal Securities Commission said Thursday that few of Russia's blue chip stocks — particularly cash-rich oil giants — are among the companies he would advise investors to pick because of their cor­porate governance policies.

Vasilyev, who heads the Institute for Corporate Law and Corporate Gover­nance, presented to reporters a revised list of ratings of Russian companies based on their treatment of minority shareholders. The institute sells the rat­ings to foreign investors.

At the bottom of the 24-company CORE rating list are GAZ, Aeroflot, Uralsvyazinform,   LUKoil   and Kubahelektrosvyaz. Surgutneftegaz, Tatneft and Yukos are also near the bottom, in 17th to 19th places, respec­tively.

All of the companies had been placed near the bottom in the previous ranking, released at the start of the year.

Yukos, which has been praised by brokerage analysts for improving its once-tainted corporate governance im­age, got low marks for not disclosing its capital structure and practicing transfer pricing and asset stopping, Vasilyev said.

The absence of minority sharehold­ers on the board and excessive control on the part of the management are rea­sons why LUKoil, Tatneft and Surgut­neftegaz scored poorly, he said.

Another company that comes highly recommended by brokers is Severstal. Vasilyev gave it 13th place. The reason: Minority shareholders are not represented on the "board of directors.

At the top of the CORE list as com­panies with good corporate governance are Vimpelcom, GUM, Lenergo, Pe­tersburg Telephone Network and Uni­fied Energy Systems.

The first four companies were previously in me top five, with UES being the newcomer, moving up to fifth from 12th place.

Knocked down from third to fourth place was Irkutskenergo, which Vasi­lyev said was failing to disclose finan­cial information and improperly con­ducting shareholders meetings. Also, the board's independent director was not re-elected earlier this year.

Vasihyev on Thursday defended his institute's ratings, saying a company's healthy financial performance does nothing to lower potential risks for mi­nority investors.

One of Vasiliyev's main drives is to get independent directors placed on company boards.

Yulia Kochetygova, who is in charge of corporate governance ratings at Stan­dard & Poor's, pointed out that inde­pendent directors do not always im­prove a company's corporate gover­nance standards when they are in the minority.

"They sometimes have little influ­ence on the board," she said.

She agreed that leading companies are far from perfect in abiding with in­ternational corporate governance stan­dards.

"Sometimes a company adopts a cor­porate governance code just to convince the market that it has no problem with such a policy," she said.

Vasilyev unveiled his new ratings list just days after his former domain, the Federal Securities Commission, pre­sented its own draft corporate gover­nance code.

Vasilyev said the adoption of the code would be good news for the mar­ket, especially because the draft code was concise and contained recommen­dations rather than instructions.

He offered mild criticism of some parts of the draft, such as a clause de­manding that all investors in a company be present at shareholders meetings at the location where the company is regis­tered. Demanding that all shareholders gather at what could well turn out to be a remote location is ridiculous, he said.

[Governance Rating Table]