Deripaska’s Pyrrhic Rusal victory

For the last year Oleg Deripaska has been a man on a mission. And after months of wrangling with regulators, UC Rusal, his heavily indebted aluminium company, looks finally to have won approval for a $2bn float in Hong Kong and Paris come January. As Dow Jones reports on Monday: HONG KONG–Russian aluminum company UC Rusal has gained listing approval from the Hong Kong securities regulator on its planned US$2 billion offering, allowing it to list in the city as early as the end of January, people familiar with the situation said Friday. But the green light was given on the condition that it won’t sell the deal to retail investors, in a bid to “protect” Hong Kong’s retail investors from the complexities of the deal. Rusal, which has also applied for an IPO on the Euronext stock exchange in Paris, earlier this month completed the restructuring of $7.4 billion in debt with more than 70 Russian and global banks. So Oleg gets his way, but only “high net worth” investors can buy into to the offering. Hong Kong regulators were apparently jittery about Rusal’s $4.5bn loan from Russian state-controlled bank VEB, and the ongoing legal battle with Deripaska’s erstwhile chum, Michael Cherney. The VEB loan is due to be repaid next year, while Cherney is suing Deripaska in London for 13 per cent of the company — one of the reasons OD was unable to list Rusal on the LSE, (much to the chagrin of UK-based capital markets bankers). This leaves the Rusal IPO resembling little more than a cross border Russian state bailout. VEB has already pledged to buy around a third of the 10 per cent of Rusal Deripaska is selling. Now retail interest has been banned from the offering, the success of the IPO depends almost entirely on the patronage of the Russian government. The retail ban is also a bizarre solution for the HK and Paris exchanges (Euronext are rumoured to be considering a similar move). Yes, both can mitigate the risk of any future catastrophe by limiting the offering to “knowledgeable” institutional buyers, but if Rusal is so risky, then why then allow it to list in the first place? Any retail investors with an unrelenting appetite for Rusal can always buy shares post-IPO in the secondary market. So, what was meant to be the debut of the world’s biggest aluminium company on the public markets now looks increasingly likely to be a zombie IPO. Oleg wins, but not in the way he would want to. Related links: Rusal IPO restricts retail investors – FT A year of hard work pays off for Rusal’s majority owner – FT Feuding oligarchs head to court – FT This entry was posted by Miles Johnson on Monday, December 21st, 2009 at 11:22 and is filed under Capital markets, Commodities, People. Tagged with euronext, oleg deripaska, Rusal, UC Rusal. Edit this entry.