ANALYSIS-RUSAL bets on aluminium price rally to rescue IPO

MOSCOW, Dec 8 (Reuters) - Investors weighing the risk of RUSAL's delayed Hong Kong listing may have decided already the gamble is just not worth it. An extraordinary rise in the aluminium price might reassure the market. But even then, the $2 billion share float might only attract Russian government-backed entities, making it effectively yet another state bailout. "The business model is not changing, so if there are problems finding buyers for the company now, they will still have problems in three months," said Maxim Semenovykh, analyst at Alfa Bank. A price rally could prompt investors to reconsider the risks surrounding the world's top aluminium maker and its biggest shareholder Oleg Deripaska, which range from heavy debts to court suits in London from a former associate. In the absence of a price increase, Deripaska would have to work hard on his government connections to persuade Russian state banks to honour their pledge and effectively bail him out. "The problem is that RUSAL wants investors to believe the state will support it eternally but it is tough to verbalise this message," said Konstantin Sonin, professor at the Russian Economic School. "It seems it has failed to communicate it so far given no interest from non Russian state-backed investors," he said. On Monday, RUSAL delayed the IPO to 2010 after the Hong Kong bourse asked it to meet more conditions before allowing its owners, which also include Russian tycoons Viktor Vekselberg and Mikhail Prokhorov and global commodities trader Glencore, to tap the market to service debts. The delay came despite a breakthrough last week when RUSAL clinched a landmark $17 billion debt restructuring deal with creditors and despite support from the Russian state, which said it could buy around a third of the IPO in which RUSAL would list 10 percent of its stock As the world's biggest aluminium producer the company is now dependent on the metal's price remaining robust -- but this is far from certain in the current market. Aluminium traded at a 13-month high of $2,190 a tonne on Tuesday, defying a global supply overhang that has swollen stocks in London Metal Exchange warehouses to record highs. Metals analysts have forecast the price, about 70 percent higher than February's seven-year low, is due for a downward correction. "There is a general consensus that there is an oversupply of aluminium in the world, and this will cap prices," JP Morgan analyst Yury Vlasov told Reuters. WHAT'S THE DISCOUNT? Deripaska built his empire during violent "aluminium wars" of the 1990s and was ranked Russia's richest man before the crisis wiped 60 percent off the value of the metal and left RUSAL struggling with huge debts. He enjoyed unprecedented state support when state bank VEB lent it $4.5 billion last year to avoid a default. Sources have said the Hong Kong exchange was keen to know whether the debt would be rolled over beyond October 2010 as well as the prospects of a 2 billion pounds suit by a former associate Michael Cherney in the UK High Court. Svetlana Borodina, head of Russia and CIS corporate governance ratings at Standard and Poors, said RUSAL could seem a good choice to investors looking to broaden exposure to a rare emerging markets metals firm. "Look at China. Things are not perfect there either... So you have to choose very carefully... It is a question of discount and reputation," she said naming aluminium prices, high leverage and corporate governance among the key risks. JP Morgan on Tuesday said it was concerned about a potential correction in energy and commodity markets and was tactically downgrading Russia to neutral within global emerging markets. Deripaska has himself said the firm was in no rush to restart idle capacity until demand fully recovers. That indirectly echoed the view of some analysts that the current aluminium price strength is supported by abundant liquidity and future price moves depend on prospects for the withdrawal of U.S. emergency fiscal and monetary stimulus. "What is very unlikely to change for RUSAL is heavy state support although I'm not sure if investors view that as an absolutely positive thing," said fund manager Ivan Mazalov, who helps manage $3.5 billion at Prosperity Capital Management. Mazalov said he had not yet considered buying into RUSAL. (Editing by David Cowell) Copyright 2009 Reuters