London in the Bear’s Embrace

Writing in the Moscow Times Alexei Bayer (pictured), a native Muscovite and currently a New York-Based economist, offers the following ominous thoughts on the infiltration of

In a song cataloguing the ills of contemporary Russia, sardonic balladeer Timur Shaov sings about Russians who choose to leave the country, cautioning them: “London is not elastic, we won’t all fit there.”

Londoners probably exaggerate when they claim that rich Russians have driven up their real estate prices — they used the same complaint against rich Arabs in the 1970s — but it is true that the vibrant, free-spending Russian community has contributed to the social, cultural and economic revival of the British capital.

There are Russian-speaking enclaves in Berlin, Tel Aviv and New York, but London has become the undisputed hub of Russian expat life, usurping the role played by Paris in the 1920s.

There are many reasons for this. English, rather than French before the Revolution or German in the early Soviet period, is now the foreign language a Russian is most likely to speak. London is closer to Moscow than New York, while getting a British visa is easier — and a damn sight less humiliating — than dealing with the rude and bureaucratic U.S. Consulate.

Britain has had a special connection to post-communist Russia ever since British Prime Minister Margaret Thatcher famously declared in 1984 that she could do business with Soviet leader Mikhail Gorbachev. The Russian colonization of London was started in the early 1990s by U.S. citizens of Russian-Jewish descent who flocked to the old country to make money but prudently parked their families in London. Many U.S. multinationals and financial institutions still run their Russian operations from Britain.

The 53 Russian billionaires on the Forbes list probably spend more time in Britain than anywhere else, including their native country. One, Roman Abramovich, has taken Chelsea to the top of English football. Another, Boris Berezovsky, has emerged as the Leon Trotsky of the Putin era and has turned London into the nerve center of Russian political opposition.

In fact, there has been talk of the British losing patience with their Russian residents after the poisoning last year of ex-KGB agent Alexander Litvinenko. However, while the Brits may consider it bad manners to place highly radioactive polonium-210 into a restaurant teakettle, they are used to East Europeans settling scores in London, such as the 1978 murder of Bulgarian dissident Georgy Markov with a poisoned umbrella tip.

The British love affair with Russia will continue as long as it is good for business. So far, business has been great. Over the past three years, Russian companies have been instrumental in helping the City of London pull ahead of Wall Street as a global financial center. Russian IPOs totaled $4.9 billion in 2005 and rocketed to $14.5 billion last year. If analysts in are to be believed, this is just the tip of the iceberg. Hundreds of Russian firms big and small are expected to go public in coming years.

Most are likely to find their way to the London Stock Exchange and to its Alternative Investment Market, geared to small, rapidly growing startups. Russian companies are especially attracted to London because it offers laxer rules for listed companies than New York, where regulations were tightened in the aftermath of Enron and other malfeasance at the start of the decade.

Russian corporate governance is notoriously shoddy, and many would not have been able to list in New York at all. And state-owned Rosneft, which alone raised over $10 billion in London last year, acquired its most valuable oil-producing assets after the government stripped them from Yukos.

Russian stocks suffered one of the worst sell-offs during the global market decline in late February and early March. This may not be the end of market selling. Investors should not forget that during the 1998 ruble crisis Russian companies didn’t hesitate to cheat their foreign investors. London may yet come to regret the bear’s hug.

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