Russian metal tycoon Deripaska caves in to US pressure

Russian metal tycoon Deripaska caves in to US pressure
Deripaska agrees to give up control of Rusal / kremlin.ru
By bne IntelliNews April 27, 2018

Russian metal tycoon and Kremlin insider Oleg Deripaska has caved in to US pressure and agreed to sell some his shares in Rusal to take his stake to under 50% in the hopes that the US Treasury Department (USTD) will remove some of the destructive sanctions placed on his company on April 6, the company said on April 27.

Deripaska was the hardest hit by the new sanctions list, presumably for his role in interfering with the US presidential elections.

The USTD released an update to the sanctions against Russia on April 6, with seven Russian tycoons, 12 major companies and 17 government officials added to the Specially Designated Nationals And Blocked Persons List (SDN List). Deripaska’s companies made up more than half of the companies on the list.

Rusal warned that the new sanctions slapped on it, "may result in technical defaults in relation to certain credit obligations" the company said in a filing to the Hong Kong stock exchange where its shares are listed on April 9.

Things got worse for the company after London Metals Exchange (LME) said on April 10 it was halting all trading in commodities produced by Rusal. This could account for 10-20% of Rusal's sales, analysts surveyed by Vedomosti daily estimated.

That was quickly followed by Swiss oil trader Glencore saying it was putting on hold the decision to convert a 8.75% stake in Rusal to GDRs of En+, which was previously welcomed by investors as part of En+'s successful $1.5bn IPO in November 2017.

The value of Rusal’s equity has been almost destroyed by the sanctions, going into free fall as US investors, or those with exposure to the US, are banned from owning the shares. The stock lost more than half its value in a week.

But the boomerang effect of taking out such a largely player on the international commodities market meant the pain quickly rebounded on western investors and manufacturers. That led the USTD to an embarrassing climbdown this week, where the pain of sanctions was eased. The period in which investors have to sell their Rusal securities was extended from one to five months and the USTD said sanctions may be lifted completely if Deripaska sold his shares.

Initially the oligarch was defiant, saying he would not sell on April 27, but in an apparent change of heart (or more likely Kremlin pressure to bring the fracas to an end) Deripaska announced late on the same day that he will give up control of Rusal by reducing his majority stake in En+, its London-listed parent company, cutting his ownership in the holding from 70% to under 50% and resigning from the board.

En+ will also relinquish its rights to nominate the chief executive of Rusal and manage the business, the Financial Times reported citing sources close to the deal.

The ball is now in the USTD’s court to see if it accepts the proposed changes as sufficient to remove the worst of the sanctions on Deripaska and Rusal, which accounts for 8% of the world’s aluminium supply and is the world’s second largest supplier of the metal.

 

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