Russia urged companies to delist their shares from overseasstock exchanges and trade in Moscow in an effort to safeguard themas international sanctions mount against the country after itstakeover of Crimea.

“This is a question of economic security,” First Deputy PrimeMinister Igor Shuvalov told reporters after a government meetingnear Moscow today. Speaking later in a telephone interview, he saidthe move isn't mandatory and that companies should make independentdecisions.

The U.S. and Europe are threatening to step up economicsanctions against Russia following President Vladimir Putin's moveto annex Crimea from Ukraine last month. Higher borrowing costs ledthe government to scrap ruble-bond auctions in five of the last sixweeks. Since the incursion into the Black Sea peninsula on March 1,investors turned to offshore equity trading, with U.K. volumegrowing faster than in Moscow.

Companies including Yandex NV, VimpelCom Ltd., and Mail.ru GroupLtd. are only traded on exchanges abroad while OAO Lukoil, OAOGazprom, and OAO Sberbank, among others, have shares listed inMoscow and London. The Micex rose 0.2 percent at 1,352.33 inMoscow, and has lost 6.4 percent since Feb. 28. The Bloomberg indexof the biggest Russian stocks traded in New York gained 0.9 percentat 1:28 p.m. in New York, and the Russia Depositary Index of Londonshares fell 0.2 percent.

The Russian government is creating “attractive” conditions forcompanies that decide to re-register on OAO Moscow Exchange,Shuvalov said. The country will push on with plans to sellstate-owned assets on the stock exchange, he said.

“The question is whether listed companies will have enoughliquidity on the Moscow Exchange and new ones will be able to raisemoney at good cost levels,” Jack Arnoff, a partner at ElbrusCapital Partners in London, said by email today. “Russia needs tomake further progress on shareholder rights in order to attractbusiness to the local exchange; this is the main issue.”

With foreign investors holding 70 percent of Russia's stockfree-float, a move away from Western markets would stoke a “furtherselloff,” according to Elena Loven, who helps manage more than 1billion euros ($1.4 billion) in Russian stocks at Swedbank Robur inStockholm.

“You are just moving away from your 'natural' investor base,”Loven said by email today. “So I can't see anything positive inthat for the broader equity market.”

Gazprom, Mail.ru

Matthew Hammond, managing director of London-listed Mail.ru,declined to comment on Shuvalov's proposal today. Hammond said inFebruary that Mail.ru was planning a Moscow listing soon foremployees' benefit and index inclusion.

A Gazprom press service official, who asked not to be identifieddue to company policy, said the company had heard the proposal,declining to elaborate. OAO TransContainer's representative saidthat the company doesn't plan to delist from the London StockExchange.

OAO Surgutneftegas spokesman Alexey Artemnenko declined tocomment by phone. Lukoil's press service declined to comment byemail. Spokesmen from OAO Severstal, Polymetal International Plc,OAO Uralkali, Evraz Plc, OAO Mechel, OAO Rosneft, and Polyus GoldInternational Ltd. declined to comment.

“The capital market is becoming more complicated and more closedto Russian companies,” Shuvalov said. “This is already felt by ourexporters and those who borrowed abroad.”

Shares of London Stock Exchange Group Plc dropped 2.2 percentafter Shuvalov's comments. LSE said it has 68 Russian companiestrading on its exchange. William Briganti, a spokesman for NasdaqOMX Group Inc., declined to comment, as did Sara Rich of the NewYork Stock Exchange.

Yandex spokeswoman Asya Melkumova declined to comment. Russia'slargest Internet company said in February that its board supports aMoscow listing.

“We already have an optimal structure with 10 percent sharestraded in Moscow and about 35 percent traded abroad,” said ElenaKokhanovskaya on behalf of OAO Mobile TeleSystems. She declined tocomment on the government proposals.

OAO Novolipetsk Steel's spokesman Sergey Babichenko said thecompany has had a Moscow listing since 2004 and declined to commenton the delisting option. VimpelCom's spokesman Artem Minaev said byemail that Russia-based company OAO VimpelCom delisted from the NewYork Stock Exchange in 2010 while the Nasdaq listing was done by anAmsterdam-based company.

CTC Media Inc.'s spokesman who declined to be named said byemail the company is closely watching the market situation and theRussian government's legislative initiatives, declining to commenton concrete plans.

'Powerful Stimulus'

The conflict in Ukraine has damped efforts by the MoscowExchange to attract traders, including aligning the settlementsystem with international markets and extending trading hours.Trading volume in 10 of the country's biggest stocks was 46 percenthigher in the U.K. than in Moscow today, according to data compiledby Bloomberg. That gap had vanished before Putin began takingCrimea from Ukraine.

The Moscow Exchange is ready for “large-scale” transactions andhas the required infrastructure, Andrey Braginskiy, a spokesman forthe bourse, said by email today.

“Carrying out Russia's privatization program through local sharelistings on the Moscow Exchange can serve as a powerful stimulus tofurther develop the Russian equity markets,” he said.

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