UPDATE 3-RUSAL in 1.68 mln t China aluminium supply deal

By Polly Yam and Polina Devitt HONG KONG, Nov 2 (Reuters) - The world's top aluminium producer, Russia's UC RUSAL, has struck a contract to sell 1.68 million tonnes to Chinese state conglomerate NORINCO over seven years, the Russian firm said on Monday. The deal between a Chinese arms exporter and a company steered by a debt-laden Russian tycoon could help pave the way for RUSAL's planned $2 billion initial public offering. 'RUSAL and NORINCO have agreed the price and all other terms and conditions of the aluminium delivery,' the Russian firm said in a statement emailed to Reuters. A source at the Chinese firm, officially known as China North Industries Corporation, said the deal meant RUSAL would supply 20,000 tonnes of aluminium a month to Shanghai for sale on the spot market. The contract will run from 2010 to 2016. That would add extra volume to an already well-supplied Chinese aluminium market. Until the start of this year, 20,000 tonnes a month would have more than doubled China's average monthly imports of primary aluminium. But imports have rocketed since March and stayed well over 100,000 tonnes for each of the last six months thanks to China's relatively high demand. RUSAL is urgently trying to reach agreement with foreign creditors on $7.3 billion of debt by mid-November to pave the way for a Hong Kong share listing and to help pay off debt, senior bankers said last week. The IPO, handled by Credit Suisse ( CS - news - people ) and Goldman Sachs ( GS - news - people ), aims to raise $1.5-2.5 billion, which could make it the biggest this year. BUSINESS DEAL The RUSAL-NORINCO deal was signed last Friday. 'The deal is a purely business deal between RUSAL and NORINCO,' the NORINCO source said late Monday, without providing details. He added the details were confidential. The Chinese firm's interests include vehicles, real estate, finance and trade, but it is best known as an arms manufacturer which has been criticised several times by Washington in the past decade for selling military technology to Iran. RUSAL's main owner is Oleg Deripaska, once Russia's richest man and now its most indebted tycoon. RUSAL expects to double China sales from 5 percent of its revenue in 2009 to 10 percent by 2015, it said in a statement. With $2.27 trillion of foreign exchange reserves at the last count, China has plenty of cash to spend to buy up resources. It has struck many foreign supply deals this year, including a $25 billion loan for oil deal with two Russian firms in April. The worth of the entire volume of aluminium, based on today's aluminium prices at $1,911, would equal $3.21 billion, a Reuters calculation showed. Without the agreed price, the market is hard to valuate the whole deal. 'If there is to be an advance payment, then it will probably be at some kind of discount, so it's hard to evaluate it without seeing the contract,' said Alexei Morozov, analyst at UBS ( UBS - news - people ). Alfa-Bank analyst Maksim Semyonovykh agreed without the price, it was hard to judge how positive the deal was for RUSAL. 'But this announcement about the contract was probably for exactly that -- to create a positive image around the company ahead of its IPO,' he said. RUSAL still needs to agree a debt restructuring deal with a club of over 70 international banks before the IPO can proceed. 'It gives RUSAL a breathing space with its creditor banks but does not solve the problem,' said Chris Weafer, chief strategist at UralSib in Moscow. 'This deal can help with the IPO, but only to the extent that it may make it easier for RUSAL to attract government-linked investment institutions in the region.' The IPO was still unlikely to appeal to other investors because of uncertainty over global industry trends and the company's future, he said. 'The valuation that RUSAL needs for the proposed IPO would also make the issue only of interest to very long term investors rather than the usual portfolio investors. They would have to sell with a discount to attract a broader audience.'