Page 2 of 2 Rusal tests Hong Kong's waters
By John Helmer
Rusal, a private company owned by Deripaska (53%), Mikhail Prokhorov (20%),
Victor Vekselberg and Len Blavatnik (18%), and Glencore (9%), has never issued
an audited financial report nor a public investor prospectus document before.
If the HKEx gives the go-ahead, it ought to be found
here.
There is no telling who on the HKEx Listing Committee will have voted to
approve the claims the prospectus makes. There is no telling whether, after the
doors close on Thursday's meeting, the companies that stand to gain have
representatives on the committee voting.
Sources at Credit Suisse and BNP, another of the underwriters in Hong Kong,
have been helpful in clarifying aspects of Rusal's financial condition so long
as they are not identified. In the past, Rusal has launched witchhunts into
leaks of financial details, threatening banks that disclose information from
Rusal
presentations with exclusion from lending syndicates.
In presentations that Rusal has already made to analysts of the banks
interested in the Hong Kong listing, and a parallel one being organized in
Paris, revisions have been made to revenue, earnings and profit results that
were handed out during the London Stock Exchange listing attempt in 2007.
Many of these are minor, though it is now clear in retrospect that when Rusal
told London analysts in June of 2007 that it expected to generate $14.3 billion
in revenues for their bauxite, alumina, and aluminum, it was over optimistic.
The new figure for 2007, as reported in Hong Kong and Paris, is $700 million
less at $13.6 billion. Bottom-line net profit figures have been displayed this
time round. They range from just over $800 million in 2001 and 2002, to a peak
of $2.9 billion in 2006. In 2007, Rusal reports a retreat of profit to $2.8
billion.
Then in 2008, the deluge of red ink began. For last year, the loss came in at
$5.98 billion. For the first half of 2009, the loss was $720 million. Although
the promoters of the HKEx share sale are playing down the magnitude of these
losses, claiming the bulk reflects the writedown of asset values, the collapse
of global demand for aluminum, and of the aluminum price, has been a major
cause of loss making as well.
Since Rusal has not been making full payment on its debts, and is seeking to
postpone them into the distant future, these costs are omitted from the
presentations and reports. The balance-sheet results that have leaked give, as
a result, a more positive impression than one that would more comprehensively
reflect the company's current condition.
Still, even that much disclosure has proved too much for the company's
management. According to Vedomosti and the Moscow Times - daily newspapers in
Moscow, published in Russian and English, by a syndicate of the Financial
Times, Wall Street Journal, and a Finnish media group - "as deeply indebted
United Company RusAl sweet-talks foreign investors ahead of a planned initial
public offering, it has launched a 'terror' campaign at home against a business
newspaper. Vedomosti said RusAl and its lawyers were bombarding its journalists
with threatening cell phone calls and e-mails after it published a front-page
article on October 26 that contained information from a closed-door investors
meeting where RusAl announced its 2008 results."
The company declares on its website that "by working with international
institutions such as the European Bank for Reconstruction and Development and
the International Finance Corporation, UC RUSAL developed and implemented its
corporate governance standards, based on the principles of transparent and
responsible business operations."
Rusal generally declines to comment to reporters or respond to their inquiries.
The Securities & Futures Ordinance of Hong Kong requires the offer and sale
of shares in Hong Kong to be governed by "such steps as it considers
appropriate to maintain and promote the fairness, efficiency, competitiveness,
transparency, and orderliness of the securities and futures industry".
When the Listing Committee members file into their Thursday meeting this week,
they could be going in a direction they haven't been expecting - Hong Kong's
reputation as an international share market.
Note: 1.
The response from Mr Sapp is as follows:
Dear Sir:
Regarding the first parts of your enquiries and statements below:
- Each member of the Listing Committee is a public servant for the purpose of
the prohibition in section 4 of the Prevention of Bribery Ordinance.
- Each member of the Listing Committee must abide by guidelines with respect to
observation of the duties of confidentiality and procedures regarding
declaration of interest. The duties of confidentiality require every member of
the Committee to treat all papers which they receive in their capacity and all
discussions at committee meetings confidential and must not disclose contents
to anyone outside the Committee, unless expressly authorized by the Committee
to do so. The duties of confidentiality do not conflict with the duty to
declare conflicts of interest in relation to the listing proceedings which are
set on the HKEx website and repeated below.
- Furthermore, HKEx’s wholly owned subsidiary, The Stock Exchange of Hong Kong
Limited (SEHK), is under the supervision of the statutory regulator – the SFC –
and reports to the SFC the details of its vetting of each and every listing
application conducted by SEHK.
Regarding the last line of your enquiries and statements below (the line marked
with italics):
- The SEHK Board has arranged for all of its powers and functions in respect of
all listing matters to be discharged by the Listing Committee and/or its
delegates. Accordingly, the Listing Committee and, in relation to certain
powers of review, the Listing Appeals Committee have sole power and authority
to act in relation to all listing matters to the exclusion of the Board, unless
and until the Board revokes these arrangements.
Scott Sapp
HKEx Corporate Communications
Mode of Operation
13. The principal mode of operation of the Committee is through meetings at
which a quorum of members is present. Meetings held by the Committee fall into
the following categories: regular meetings, generally held each week; review
meetings, to review decisions made by either the Committee or Division;
disciplinary hearings, to consider disciplinary action brought by the Division
and also including disciplinary review meetings, where the Committee reviews
decisions taken at disciplinary meetings of the Committee; and policy meetings,
at which policy issues are discussed. The quorum for meetings of the committee
is five members present in person. Where a Committee meeting is convened to
review a decision of its own or of the Division the Chief Executive may not
count in that quorum.
14. A pooling arrangement is operated to help reduce the workload involved for
individual members attending regular meetings, and also to provide a pool of
members from which to draw if a decision made by the Committee is required to
be reviewed at a subsequent meeting. Under the pooling arrangements all
members, except the Chairman, Deputy Chairman and the ex officio member are
“paired” with another member. Under the pooling arrangement a member will be
designated as the primary or secondary member for a particular week’s regular
meeting, and the member with whom he or she is paired will be designated as
secondary or primary as appropriate. Members are designated as primary or
secondary on a fifty-fifty basis. Thus, over the course of the year, a member
would be on primary for approximately half of the Committee’s regular meetings.
The pooling arrangement does not apply to disciplinary, review and policy
meetings.
15. Regular meetings of the Listing Committee are normally held each week with
breaks at Lunar New Year, Easter, Christmas and New Year. If the volume of work
so demands, additional regular meetings are scheduled. Disciplinary meetings
and Review meetings, to consider reviews of decisions reached by the Committee
or the Division are held as required. Policy meetings are normally held
quarterly with supplementary meetings as necessary.
Handling Conflicts of Interest
16. The Rules governing the proceedings of the Listing Committee incorporate
specific requirements relating to the handling of conflicts of interests. These
provisions require that a member who is in any way, whether directly or
indirectly, materially interested in a matter to be discussed at a meeting must
declare any such material interest to the Secretary prior to the meeting or to
those present at the meeting and, whenever appropriate and practicable, return
all relevant papers to the Secretary as soon as he becomes aware of the
conflict. If the member attends the meeting at which the matter is to be
considered he must leave the meeting immediately when such matter comes up for
discussion and only return after it has been dealt with. The arrangements
preclude a member with a material conflict of interest from participating in
the deliberation of the issue or counting as part of the quorum present at the
meeting. The minutes of Listing Committee meetings record all declared
conflicts of interest.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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