MOSCOW - Oleg Deripaska, chief executive of Rusal, the Russian aluminum
monopoly, is preparing a series of presentations to institutional investors
next week in Boston and New York, chaperoned by one of his largest creditor
banks, BNP Paribas.
Rarely has such an odd couple asked to be believed for the sincerity of their
hand-holding.
The share-sale prospectus released by Rusal to the Hong Kong Stock Exchange on
December 31 reveals that BNP Paribas' affiliated banks are owed more than
US$415 million by Rusal; no other international bank appears to be owed a
larger sum by Rusal.
In addition, BNP claims more than $80 million from another of
Deripaska's companies, about which there has been a "dispute" and a "repayment
shortfall" in connection with Deripaska's abortive effort to take a stake in
the North American auto parts firm, Magna.
BNP chairs and coordinates a syndicate of international lenders in connection
with Rusal's billion-dollar debts. BNP is listed as the bank in charge of
enforcing the security of Rusal's loan agreements with the syndicate. It is one
of the principals in the "cornerstone placing agreements", according to which
the first listing of Rusal shares on January 27 was guaranteed.
The purpose of BNP's exercise in the US is to convince US investment fund
managers and analysts of institutions holding Norilsk Nickel shares that they
should vote in favor of Deripaska's hostile takeover attempt against Norilsk
Nickel, Russia's largest mining company and a world leader in nickel, copper,
palladium and cobalt.
On October 21, at a planned extraordinary shareholder meeting called by Rusal,
they are being asked to reverse their near-unanimous vote against this scheme
when the annual general shareholders' meeting of Norilsk Nickel was held on
June 29.
Additional presentations for the same purpose are planned by Rusal, BNP and
another of its creditor banks and promoters, Credit Suisse, in London. The
proposition that the Norilsk Nickel minority shareholders should embrace
Deripaska's hostile takeover effort has already been rejected in the open
marketplace, and by none other than Rusal shareholders, since the company first
sold shares in Hong Kong seven months ago. The vote of no-confidence is
reflected in the share price chart, which illustrates Rusal bouncing between
38% below the initial fix to 24% below at the moment.
What interviews with fund managers in London, Hong Kong and the US reveal is
the churn rate, which isn't disclosed in this highly volatile price line - that
is, the amount of short-term share buying and selling that is driven by wagers
on the movement of the price of commodity aluminum.
The unusually high churn rate for Rusal reported by these market experts
suggests that few, if any, of the original January and February shareholders
remain committed to the company and its chief executive, apart from those who
have no choice - the Russian government bank VEB, which is securing the state
monopoly of aluminum from bankruptcy; Nathaniel Rothschild and his father
Jacob; and the other cornerstone investors - tycoons Robert Kuok and Li
Ka-shing, hedge-fund boss John Paulson, and the Libyan Investment Authority.
Deripaska faces troubles in Russia, put on open display this week by the two
most powerful decision-makers in Russia, Prime Minister Vladimir Putin and
Deputy Prime Minister in charge of resource concessions, Igor Sechin. The
occasion was their state visit to the plant, town, workers, and management of
Norilsk Nickel.
When Deripaska's aircraft had trouble getting airport clearance to land for
this meeting, he decried his rival Norilsk Nickel shareholder, Vladimir
Potanin, for a dirty trick. Land Deripaska eventually did - with this advance
signal for all to see that it is the Kremlin that is running Norilsk Nickel,
and that even local air-controllers aren't afraid that Deripaska may become
their boss.
For those fund managers who are about to receive visits from BNP and Rusal, it
is no novelty to understand that in the management of Russia's natural
resource, mining and metal companies, the oligarchs with shareholding control
are temporary concessionaires, with limited operating, earnings, tax and
capital gains rights; and that it is the state which dictates terms and the
sharing-out of rewards.
Exactly how the sharing of these concession rewards has been arranged,
including the debt bailouts Rusal and Norilsk Nickel received during the 2008
crisis, is widely understood in oligarch circles but unprintable in a family
newspaper. The operative rule, however, is that those officials who supervise
the concessionaires swear to have no purpose but the welfare of the market, the
workforce, and the Russian commonwealth - and no desire to intervene when the
concessionaires fight each other. That is why Sechin, seated to Putin's right
during their meeting with shareholders and management, said: "The main
shareholders will reconcile their positions. We don't interfere in corporate
processes. That's the shareholders' business."
Understanding why the no-intervention disclaimers must be made, it follows that
the methods of Kremlinology are required to decipher the real meaning of the
intervention which Putin and Sechin have decided towards Deripaska and Potanin.
Accordingly, Tuesday's display indicates that timing and circumstance are not
going as well for Deripaska as he will claim next week in North America.
At his session with Norilsk Nickel workers, Putin was peppered with concerns
about the Pikalevo analogy. This refers to June last year when residents of the
Leningrad region town of Pikalevo protested at the collapse of their
livelihoods at the hands of the Deripaska group, which dominates the town's
alumina refinery. The trouble was settled by Putin appearing on national
television to give Deripaska his marching orders. Since then, Deripaska has
clawed back much larger financial favors from the prime ministry, and dismissed
the affair as a show for television.
This time round, Putin has been at pains to distinguish Deripaska's conduct and
the problems at Pikalevo from the takeover conflict at Norilsk Nickel. But the
insistence of the questioning on the Pikalevo point was a round-one win for the
state official running Norilsk Nickel, Vladimir Strzhalkovsky, who for months
has been publicly attacking Deripaska's competence and ethics.
According to the transcript published by the prime ministry, the question for
Putin was that since shareholders such as Deripaska (explicitly named) have as
their main purpose "to fill their own pockets, many people in Norilsk are
worried about the current conflict between the main shareholders of Norilsk
Nickel. I would like to ask you: Do you think how our employees are protected
from the possible adverse effects of this conflict? And I hope that it will not
be a Pikalevo scenario - I hope, and am confident in this. But can we count on
the support of the government of the country?"
Putin's reply started with an explanation of how the conflict at Pikalevo was
not comparable with the shareholder fight at Norilsk, then added, "With regard
to the [shareholder] conflict - yes, we see that it's there. I tell you
frankly: today it has not even been discussed. And in accordance with the law,
we would not be there to intervene. But I'm on to something that has drawn
attention."
At this point, Putin referred to the proportion of profit Norilsk Nickel and
its international peers had distributed as dividends to shareholders.
"Kazakhmys", he said, "distributed 6.6%, Rio Tinto in my opinion, 18%; BHP, 38%
plus something. The shareholders of Norilsk Nickel distributed as dividends 50%
of the profits - the largest allocation [in the peer group]. I think that's
enough. You see, an order of magnitude greater than all the rest!"
Implicit in this remark was condemnation by the prime minister of the attempt
by Deripaska to get Norilsk Nickel to pay out in dividends more than it had
earned last year - a payout rate of about 115%. That had been blocked by the
unanimous opposition of the minority shareholders, Potanin, the management, and
the board elected in June.
In short, Putin told the workers he expected to see reinvestment of profits for
social purposes and would not allow Rusal to extract cash from Norilsk Nickel
if that would work to "the detriment of the company". He also assured the
workers that he had made his will plain to the shareholders. "Today we talked
to them and about the resettlement program, and about environmental issues, and
so on. I must give credit to shareholders; they are not greedy, not mean, not
argumentative - all at once they agreed."
Remarks by Putin during the management and shareholder session also suggested a
win on points for Strzhalkovsky against Deripaska. Discussing the proposals
from government ministries to raise more tax from Norilsk Nickel through a duty
on nickel and copper exports, greater spending on environmental protection
measures, and higher social benefits, Putin implied that the state wanted to
curb its payouts to the oligarchs' profit line, and to increase budget revenues
at their expense.
Some Moscow brokerage analysts reacted that this might be negative for the
share price. Others noted that the proposed tax would amount to less than 6% of
prospective earnings - insignificant for the company's financial performance.
But Putin's emphasis on fiscal probity also implies his reluctance to endorse
the large state bank loans Deripaska would require if he were to make good on
his takeover bid for Norilsk Nickel; or the cash-stripping from Norilsk Nickel
to pay down Rusal's debts if Deripaska were to be allowed to take control. A
Troika Dialog analyst, who has championed Rusal in recent reports, expressed
his disappointment that "nothing groundbreaking was said during the meetings";
by that he meant "that UC RUSAL would lose more than others should the current
status quo be maintained."
The London news in the run-up to the October 21 shareholder vote at Norilsk
Nickel isn't going to Deripaska's benefit either. The UK High Court will resume
for the Michaelmas term on October 1, and a hearing has been scheduled a few
days later to decide when Deripaska goes on trial to defend the shareholding
that currently gives him control of Rusal.
The accumulation of new evidence files in court, and the judge's ruling on the
trial schedule, mark the progress Mikhail Chernoy (Michael Cherney),
Deripaska's former patron and shareholding partner, is making to adjudicate the
suit for his share of Rusal, and of the dividends and profits Deripaska has
taken for himself since the two men signed a trustee and shareholding agreement
in March 2001. The sum of Chernoy's claim is more than $4 billion. That's more
than half the value of Deripaska's stake in the company.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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