29th August 2012
Multiculturalism is – to put it mildly – controversial. Some say multiculturalism it is a vile conspiracy (from the EU?); others suggest it is a happy, unplanned event that benefits us all.
It's much the same with stock market multiculturalism. The London Stock Exchange is the most diverse in the world – its main FTSE100 index is the only national measure of share market value to be packed with companies with little connection to the UK other than place of registration and stock market allegiance.
While the Dow is for US companies, the CAC40 for the French, and the DAX for Germany, the FTSE 100 is a veritable rainbow, embracing everything from South African breweries to Indian bauxite via Mexican silver and Kazakhstan copper. Some 15 mining companies are listed, by far the biggest sector group of non-UK companies – none has any significant economic activity in the UK.
Whether this multiculturalism works for investors can be, as with any other stock market debate, a matter of timing. Over the past year, they have depressed the FTSE 100 – the mining sector is down by some 15 per cent while the index itself is up nearly 13 per cent. Swiss commodities giant Glencore has seen its share price suffer as its takeover of Xstrata rumbles on. But over longer periods, index trackers did well from the miners as they played the commodities super-cycle.
A London listing is the prize from the pit
But irrespective of performance, one thing is clear – the march of the miners to London listings has benefited the City as a financial centre. These companies have shelled out many tens of millions each to bankers, lawyers, accountants and public relations folk, for their initial presence here and continue to pay huge sums to maintain their listings. They believe it is worth it paying premium prices because of the visibility, marketability and respectability they acquire from London.
There are unintended multi-cultural consequences, however, as Indian mining group Vedanta continues to find out. The London listing means annual meetings in the UK, exposing executives and directors to a potential publicity glare that might not be present in their countries of activity.
This week, Indian miner Vedanta held its AGM in central London. This was not the formal affair directors had hoped for. Protesters outside covered the location with red paint. Inside the meeting, campaigners, many of whom had bought the one share necessary to gain admission, questioned the board in a way that might never have been tolerated in India.
Celebrity blast at the board
Backed by member Bianca Jagger, Amnesty International said: "An ongoing inquiry by India's Human Rights Commission [has found] that the police in both the framing of false charges and the suppression of dissent have acted to promote the interests of the company".
Amnesty's Peter Frankental asked the meeting: "Do you take these findings and allegations seriously and what are you going to do about them?"
Other charges centred on Vedanta's controversial attempts to mine bauxite from a hill in Orissa, India, that is sacred to local tribes.
Vedanta non-executive director Naresh Chandra said: "Give us the information and we will have it investigated". But the meeting heard that pollution control authorities in Goa had ordered the temporary closure of a coke unit after complaints.
Some 13 per cent of shareholders voted against the directors' pay – and this in a company where ethical funds rarely dare to venture.
One result of this and other negative publicity is that the Vedanta share price has fallen 30 per cent this year – far faster than the mining sector. And that risks Vedanta losing its prized place in the FTSE100 index.
Vedanta could fall out of Footsie
The index rebalancing – due in early September – involves demotion to the FTSE 250 for any firm with a market capitalisation lower than that in position 110 on the London stock exchange. Currently, that means any firm with a value under £2.32m – Vedanta is £2.52m so it still has a slim margin of safety. Fund manager Ashmore and interdealer broker Icap are the most likely for the drop while their places are likely to be taken by turnround specialist Melrose , and John Wood Group, the oil and gas power generator.
But whether it survives in the FTSE100 or not, Vedanta is not the only multi-cultural miner under fire in London. A report earlier this year from the London Mining Network suggested that "if you run a mining company and want to get away with fraud, pollution, complicity in torture and even murder, then a listing on the London Stock Exchange (or the Alternative Investment Market for smaller companies) is for you."