| |
Russia's aluminum magnate turns to
gold
By John Helmer
MOSCOW -
Oleg Deripaska, the chief executive of Russian Aluminum
(Rusal), Russia’s largest aluminum producer, has been
feeling wrongly maligned for a long time now. He
continues to be under fire in courts across Europe and
the United States and is facing various government
pressures on his aluminum assets.
Deripaska is
one of the oligarchs who emerged from the ruins of the
Soviet Union to take over the new Russian economy. He is
very much emblematic of the tough-and-tumble
entrepreneurial class that is finding that unbridled
capitalism without protection of the former president,
Boris Yeltsin, isn’t the movable feast that they
thought. Many have run up against President Vladimir
Putin’s steely resolve to get rid of them and the pace
of their attempts to exit Russia with as much of their
assets as possible is accelerating.
Deripaska,
also the head of Base Element, which holds his
investments in other sectors of the Russian economy, is
one oligarch who is not exiting, however, because he
can’t. He appears to have looked for a multitude of
exits, only to find that the way is blocked. He can’t
list his Rusal shares on the London or New York stock
exchanges, because the company’s assets have not been
consolidated into a single shareholding company.
But, facing a variety of legal problems, he is
countering by launching an audacious bid for Russia's
biggest gold asset, which lies near the Chinese border.
Nonetheless, he has to surmount these obstacles:
A two-year old lawsuit by smelter rival Mikhail
Zhivilo in New York, accusing Deripaska and his
associates of illegal tactics in the acquisition of his
assets, has been dismissed for lack of jurisdiction
although the case is likely to be appealed or refiled
despite the efforts his well-known American lawyers.
In Zurich, Deripaska has lost an appeal of an
arbitration panel’s award of US$90 million to his
Krasnoyarsk arch-rival, Anatoly Bykov.
He faces more of the same in other European
jurisdictions. In Frankfurt, lawyers defending Germany’s
leading financial newspaper, Frankfurter Allgemeine
Zeitung, from a defamation suit filed by Deripaska have
turned up more than he can have bargained for.
In Russia, Deripaska can also complain that he’s
been wrongly maligned. In Moscow, he is the target of a
recent petition to the Kremlin by paper and pulp
producers who accuse him of a variety of hostile
takeover tactics. His acquisition of the Ingosstrakh
insurance company is under investigation by the General
Prosecutor. Although he married into the Yeltsin circle,
he hasn’t been able to turn his Kremlin connections to
much account in recent months.
The four keys to
his profit margin in the aluminum trade – electricity,
alumina, freight rates, and tolling privileges – have
come under serious pressure. His attempts to secure
shareholding control or regional political influence
over the price of energy to his smelters have been less
than effective. His control of the Nikolaev alumina
refinery, the supplier of roughly one-third of his
smelter’s raw material requirement, is under threat from
the government in Kiev, and from an ambitious Ukrainian
metals magnate. Rail tariffs have recently been raised 5
percent or more, and the possibility of special
discounting has shrunk. Deripaska was able to lobby
Finance Minister Alexei Kudrin to drop his attempt to
halt the tax concessions conferred by tolling contracts.
But he lost a similar bid in the Ukraine.
Although Deripaska has made big promises – to
build a new smelter in Murmansk, a new bauxite mine in
Guinea, a new partnership with the Chinese Aluminum
Company, a new metals complex in Australia, a new
smelter in western Ukraine – there is little yet to show
for any of them. In the section describing investment
plans for the next five years, Rusal’s website lists
four priority projects that are quite different, and a
good deal less costly.
A Ukrainian court
recently appointed an expert to take inventory of what
exactly has been done at the site of promised
Pervomaiskoye smelter, in order to enable the court to
rule on whether Deripaska has broken the terms of the
agreement with the Ukrainian government that allowed him
to take over the Nikolaev asset.
Although
Deripaska recently denied that he had made a deal with
Roman Abramovich to buy Abramovich’s half-share of
Rusal, sources inside Millhouse, Abramovich’s holding
company, claim that Deripaska has been making a bid, but
lacked the cash to pay the $3 billion sale price
outright, and cannot come to terms with other
shareholders at Millhouse, who don’t share Abramovich’s
desire to cash out of Russia. They may be biding their
time for a counter-bid aimed at Deripaska’s half-share
of Rusal.
Then on Oct 3, Deripaska turned around
and declared he had bought 25 percent of Rusal from
Abramovich. No price or payment terms were disclosed.
Deripaska has never revealed the price of any of his
transactions, or how they have been paid for.
Borrowing to fund asset takeovers, or to
leverage existing assets, or even to pay for production
upgrades and expansions, isn’t easy for Deripaska.
Although he considers that a current debt portfolio
totaling $1.5 billion – including last week’s $100
million loan from Credit Suisse First Boston – is a
gilt-edged indicator of his international
creditworthiness, he still trails his fellow oligarchs
in being able to obtain unsecured credits. For every
dollar Rusal borrows, international banks want their
hands on a metal ingot.
It was therefore
noteworthy when Deripaska, on a recent visit to the
southeast Siberian city of Irkutsk, announced that he
wants to add to his stakes in the region’s Bratsk
smelter, a new smelter site at Taishet, and the regional
electrical utility, Irkutskenergo. According to his
quoted remarks, Deripaska said he aims to bid for Sukhoi
Log (“Dry Gulch”), the largest unmined gold deposit in
Russia, and one of the largest in the world.
Now
gold mining would be a first for Deripaska, and Sukhoi
Log nothing if not expensive. A few days before his
remark, Deripaska had lost out in the bidding for a 45
percent state shareholding in Lenzoloto, the Irkutsk
region gold miner, which has been taken over by Vladimir
Potanin’s Norilsk Nickel group at a price of more than
$152 million. Potanin would like the market to think
that, with control of Lenzoloto, he now has the inside
running for the state award of the Sukhoi Log mining
license, which will go up for tender after the
presidential election next March.
Deripaska’s
announcement suggests that he thinks Potanin may be
politically vulnerable, and open to a Kremlin challenge
to knock him out of the race. Other declared bidders for
Sukhoi Log include Polymetal of St.Petersburg, led by
Alexander Nesis; and Khazret Sovmen, former owner of
Polyus, Russia's largest operating goldmine acquired a
year ago by Potanin. One thing all of them have already
learned – the tender will not be issued by the Minister
of Natural Resources, Vitaly Artyukhov, until he learns
whom the Kremlin wants to win. And that decision won’t
be made until after the election season is behind us.
So Deripaska’s open bid for Sukhoi Log turns out
to be a wager that, among the oligarchs and Yeltsin
leftovers, he has a better chance of surviving than
Potanin. Little wonder Deripaska thinks he’s been
wrongly maligned to date.
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication
policies.)
|
| |
|
|
 |
|
