Dr. P.V. Viswanath



Economics/Finance on the Web
Student Interest

  Courses/ Articles  

Corporate governance:
Listing badly
: Kazakh and Indonesian miners battle shareholders in London


Apr 27th 2013 | From the print edition


EMPIRE-BUILDERS of old claimed they were spreading Britain’s civilising influence. Similar explanations were offered when the London Stock Exchange (LSE) started welcoming mining firms from emerging economies. Listing in London would spur them to adopt British corporate-governance standards, investors were told. The firms would find it easier to raise the vast amounts of capital needed to develop big mines. And punters would be able to bet on a booming industry without worrying about the weaker protections for investors in the wilder parts of the world. Alas, it didn’t work that way, as the latest upheavals at two London-listed firms show.
Mehmet Dalman, brought in as chairman 15 months ago to sort out ENRC, a Kazakh mining firm that listed in London in 2007, quit on April 23rd. Other managers recently left in a furore over the firm’s decision to dismiss an investigator looking at its iron-ore division and an American law firm probing allegations of fraud, which it denies. A battle rages between managers, board members and the firm’s three founding oligarchs.

Shares in Bumi, a London-listed firm that owns stakes in Indonesian coal mines, were suspended on April 22nd. This followed the widening of a probe into questionable financial arrangements. One of Bumi’s co-founders, Nat Rothschild, a British financier, accuses his Indonesian partners, the politically powerful Bakrie family, of misusing funds. (Some of Mr Rothschild’s relatives are shareholders of The Economist.)
Shares in both firms have plummeted, though ENRC’s rallied after the oligarchs said that they might take the firm private again if the other big investors, Kazakhstan’s government and Kazakhmys, another miner, agree. Minority investors are appalled. Those who bought Bumi at the start have lost a bundle. Those who hold ENRC shares could be left with only one plausible buyer.
Whom to blame? Investors should have paused before piling in. And the London Stock Exchange should have paused before making its standards more flexible. Desperate to attract business away from rival exchanges, it waived a rule for ENRC requiring a 25% free float for listed firms. Bumi entered by a back door: an Indonesian miner merged with an LSE-listed “cash shell”. Such shenanigans tarnish London’s reputation.


  1. How can exchanges help in corporate governance?
  2. What are cash shells? What is the problem with them?