UPDATE 2-Russia may buy into RUSAL IPO for $20 bln valuation

By Darya Korsunskaya MOSCOW, Nov 19 (Reuters) - Russia may buy into a share issue planned by UC RUSAL at a price valuing the aluminium group at around $20 billion, a government source said on Thursday, signalling more state support for the firm's indebted owner. The source, speaking on condition of anonymity, told Reuters that state banking agent VEB was prepared to buy up to 3 percent of RUSAL, which plans to float shares this year or next, for between 14 billion and 18 billion roubles ($488-627 million). The purchase would support UC RUSAL and its indebted owner, industrial magnate Oleg Deripaska, as the company strives to complete Russia's biggest ever debt restructuring deal before raising up to $2 billion in a Hong Kong and Paris stock listing. UC RUSAL plans to float a tenth of its stock but sources close to the proposed listing say the world's largest aluminium producer must first settle a long-sought deal to restructure debts of $7.4 billion with more than 70 international banks. UC RUSAL, owned more than 50 percent by oligarch Deripaska, has struggled since the global financial crisis sapped demand for aluminium and brought prices for the metal crashing down from the record highs of July 2008. The IPO should help pay down RUSAL's mammoth debt pile, which exceeds $16 billion. Sources have said the firm is targeting Chinese firms as cornerstone investors in its IPO as talks drag with Western lenders. The price quoted by the source would value UC RUSAL at between $16.3 billion and $20.9 billion. Alcoa ( AA - news - people ), the U.S. aluminium giant, is currently valued at $13.4 billion. Some bankers said on Thursday that these valuations were too high, but others said UC RUSAL could secure a higher price. 'Their price should at least match those of the global aluminium firms,' a banker with a large Western investment bank told Reuters, asking not to be named because the bank was involved in the debt restructuring talks. 'Let's say they can trade at a premium (on multiples) to Alcoa or Rio Tinto ( RTP - news - people ) because they are the biggest ... but this premium should not be crazy,' he said. Four investment banking sources participating in the IPO process, however, gave separate appraisals of the company's potential valuation at between $20 billion and $25 billion. UC RUSAL declined to comment. VEB LIFELINE VEB has already thrown a lifeline to RUSAL, supplying an unprecedented $4.5 billion loan to avoid margin calls on Western credit and extending the facility until 2010 to help out one of the country's biggest employers. VEB chief Vladimir Dmitriyev said the board, chaired by Prime Minister Vladimir Putin, had on Thursday discussed issues related to RUSAL but refrained from further comments. 'Certain decisions have been taken. Any information about RUSAL's share placement is confidential,' he told reporters. The first banker said RUSAL's EBITDA-to-equity ratio would come in at 23 times if the expected valuation of $20 billion, plus debts of $15 billion, were divided by the expected 2009 EBITDA of $1.5 billion. By comparison, the same ratios at RUSAL's peers are a modest 7 to 9 times. VEB manages some of the money of the National Wealth Fund, which is meant to invest windfall oil revenues for future generations. The government source said the money for the RUSAL IPO could come from that fund, which has already invested some 175 billion roubles in Russian stock. ($1=28.71 Rouble) (Additional reporting by Gleb Bryanski and Olga Popova; Writing by Dmitry Zhdannikov and Robin Paxton; Editing by Joel Dimmock) Keywords: RUSAL GOVERNMENT/ (Moscow Newsroom, + 7 495 775 12 42)