Putin Appeals for Calm as Russian Bourses Dive

Vladimir Putin has appealed for calm after Russia's stock indices plummeted more than 12 per cent on Monday following doubts over the country's commitment to legal certainty after the weekend arrest of Mikhail Khodorkovsky, head of Yukos.

President Putin sought to underline his uncompromising stance on the case by refusing to meet representatives of the Russian Union of Industrialists and Entrepreneurs, the lobbying organisation of the country's largest business groups.

"There will be no meetings and no bargaining over the activities of the law enforcement agencies as long as, of course, these agencies are acting within the framework of Russian law," Mr Putin is reported as saying.

Mr Putin's appeal came after one of Russia's leading bourses, the MICEX stock exchange, halted trade on Monday morning for an hour following losses of 12.9 per cent. The rival RTS bourse was down 12.4 per cent, but continued trading in all stocks but Yukos.

The oil giant fell 19.25 per cent in early trade and at one point was down 20.25 per cent, wiping $6.5bn from its market capitalisation to stand at $25.7bn. Shares in rivals Lukoil and Surgut also fell between 10 and 15 per cent.

The rouble dived in opening trade as investors sought the safety of the dollar. By 0730 GMT the Russian currency had fallen half a per cent to Rbs30.0750 from Rbs29.9156 late on Friday, but could recover later after the Russian Central Bank reportedly spent $500m on its support.

In the debt market the benchmark 2030 dollar bond hit a session low of 92.00, down 2.88 points in early trade as fears about the potential flight of capital grew. The yield peaked at 7.57 per cent, its highest since early September.

Investors said the arrest of Mr Khodorkovsky cast a long shadow on Russia's business climate and negated the impact of Russia's recent upgrade to an investment grade country. "We shall see the change of sentiment towards Russia among portfolio investors and multinational companies," one senior western banker said. "The market is full of hedge funds and hot money which will be heading for exit in the next few days," he added.

But Renaissance Capital, a Russian research house, said the affair was unlikely to do long-lasting damage: "Kohodorkovsky's arrest will clearly not undo Russia's economic recovery. Large parts of the private sector remain vibrant opportunities to do business. While there is liable to be some short-term panic, Khodorkovksy's arrest has not changed either the direction of economic recovery or the Kremlin's commitment to building a market economy"

The Union of Russia's Industrialists and Entrepreneurs said the latest aggressive action by the law-enforcement agencies has discredited Russia's legal system in the eyes of Russian businessmen. "Russian business does not trust the country's law-enforcement system and its leaders. Companies are forced to review their investment strategy," Russian businessmen said in the statement.

Anatoly Chubais, the head of Unified Energy System, Russia's electricity monopoly and one of the architects of Russian privatisation said the arrest of Mr Khodorkovsky was leading to greater consolidation among Russian business and political elites. In an interview with the FT, Mr Chubais said: "There is a shift in the position of Russian business. Only a month ago there was no unity among the country's business elite. Today the reaction of Russian business is firm and consolidated."

However several Russian business tycoons said they preferred to stay out of politics and not get involved in the conflict between Mr Khodorkovsky and the Kremlin. "I am not sure Russian business leaders are prepared to stick their head above the parapet, particularly not now," one banker said.