Rusal's prospectus would have made Leo Tolstoy proud. To satisfy demands for more disclosure on its complicated debt restructuring, the Russian aluminium giant has, after months of delay, produced a listing document that runs to more than 1,000 pages. By repeatedly forcing Rusal management to spell out risks inherent in the listing, the stock exchange committee has taken its time to scrutinise the debt-ridden company. Such detailed disclosure will surely benefit investors. We certainly applaud this. But we're puzzled by the Securities and Futures Commission's decision to bar retail investors from purchasing the new shares in a public offering unless they are ready to put up at least HK$1 million through a financial intermediary. And Rusal's board lot size is deliberately set high at around HK$200,000. It is expected to trade at the end of this month. The large amounts required may deter some investors, but others may be encouraged to take more concentrated bets. Forcing people to put more money on the table in this way makes it more dangerous, not less, for them. The two pronged approach of tough disclosure and no IPO - ostensibly taken to protect small investors - in many ways oppose each other. The reason? Call it the Lehman complex. Local regulators and finance officials have been suffering from it ever since the collapse of Lehman Brothers. The massive losses incurred by many small investors who bought into complex investment products such as Lehman's minibonds have led to a public outcry over the lax monitoring of local regulators. Though investors eventually get some or most of their money back, regulatory agencies such the Monetary Authority, the SFC and the government are loathe to fall under such public criticism again. As a result, disclosure rules have been tightened; and banks and brokerages now have to walk their clients through long lists of potential risks with new investments - even, for example, with plain vanilla bonds issued by the central government. There is now a tendency among some finance officials and regulators to try to decide for retail investors the types of investment they should put money in. That is, presumably, what motivated the SFC to bar Rusal from listing like a normal initial public offering. But just as investment houses sometimes have a financial incentive to promote dodgy investments, regulators have a political incentive to play nanny with investors - in effect, to encourage suboptimal investment choices in some cases. This is because they need to cover their back. The high bar the SFC has set for retail investors in buying Rusal shares is a good example. The government can now say it has done all it can to protect investors. But regulators should either ban companies from listing in the exchange if they do not meet standards or force them to make full disclosure. They should not try to have it both ways by allowing them to list while making it difficult for retail investors to buy their shares. Such conundrums will continue to haunt regulators as the exchange seeks to diversify by attracting new listings from outside the mainland. Many of these will have less than stellar balance sheets. Others will wonder what treatment they will get from local regulators if they are perceived as being too big or complicated. The Rusal controversy has created uncertainties for potential listing companies and investors alike. Regulators need to clarify they are there to enforce a full and effective disclosure regime, not to sway investors about where they should and shouldn't park their money.
