Russia's Rusal gets reprieve on US$7.4 billion debt

MOSCOW — Rusal, Russia's heavily indebted aluminum giant, has won a temporary reprieve on its debt repayments, after foreign lenders agreed to grant it a two-month extension on US$7.4 billion in loans. "UC Rusal has signed a standstill agreement in relation to the restructuring of its debt to the international lending banks," the company said in a statement. "The standstill will ... provide Rusal with additional liquidity." The deal provides a crucial breather for Oleg Deripaska, the billionaire businessman who controls Rusal. His business empire, which ranges from metals to construction, is under strain after the global financial crisis uncovered the extent of his borrowing. During the years when credit was cheaper and more accessible, Deripaska expanded his business rapidly, often putting up shares as collateral. Last year, Deripaska was forced to cede stakes in Canadian autoparts maker Magna International (TSX:MG.A) and German housebuilder Hochtief as share prices tumbled around the globe. Russian markets alone have lost around 70 per cent of their value since last year's highs. Rusal owes $7.4 billion to foreign creditors, and nearly $7 billion to domestic lenders. It had been feared the company would be unable to reach agreement with foreign banks, raising the prospect of Rusal shares falling into foreign hands. Montreal-based Alcan, another of the world's largest aluminum producers, is now a subsidiary of Rio Tinto PLC (NYSE:RTP), an Anglo-Australian mining company which, in turn, recently sold US$7.2 billion of convertible debt to Aluminum Corp. of China. If the debt is converted to shares, Chinalco would own 18 per cent of Rio. Like Rusal and many other mining companies, Rio Tinto is seeking the reduce huge debts that were amassed in recent years while commodity prices soared and producers expanded internally and through acquisitions to meet what appeared to be insatiable demand. Since the middle of 2008, however, the price of many metals, minerals and other commodities has shrunk as an economic slowdown in the United States spread worldwide, depressing demand for everything from energy to metals to finished manufactured goods. The standstill agreement between Rusal and its lenders - which freezes principal payments while a restructuring deal is negotiated - will be effective for two months, but could be extended for a further month, Rusal said. Rusal said an "overwhelming majority" of its creditors had supported the standstill, following the company's efforts to roll out a cost-reduction program. Earlier this year, Russian state lender VEB extended Rusal a $4.5 billion loan to shield its 25 per cent stake in Norilsk Nickel from foreign creditors. The Russian government subsequently suspended its debt bailout program, indicating that Rusal would find it difficult to attract further state aid. Until this year, Deripaska was ranked Russia's richest man. According to Russian business magazine Finans, Deripaska's fortune has dwindled from $40 billion last year to just $4.9 billion. ——www.google.com