Q+A-Why RUSAL chose Hong Kong and Paris for IPO

By Dmitry Zhdannikov MOSCOW, Jan 15 (Reuters) - UC RUSAL, the world's top aluminium producer, has fully subscribed an initial share offer through which it hopes to raise $2.6 billion.. The shares are due to debut in Hong Kong and Paris in the first ever such dual listing on Jan. 27. WHY HONG KONG? RUSAL says it has chosen Hong Kong, where it will become the first Russian company to list shares -- pricing them in Hong Kong dollars -- because its main growth market for aluminium is in China and it wants to tap a new class of investors there. UC RUSAL said at its inception in March 2007 that it planned to list within three years, without specifying an exchange. In 2006, after RUSAL agreed to merge with smaller rival SUAL and assets belonging to trading firm Glencore to form UC RUSAL, a source close to the company said a London listing was planned. Most Russian firms traditionally prefer to list shares in London rather than in New York, where rules are much stricter. Bankers say London became out of reach for RUSAL due to legal risks arising from a London lawsuit against its main owner, Oleg Deripaska, that could potentially see a stake returning to former business associate Michael Cherney. Political relations between Moscow and London have chilled since the fatal poisoning of former KGB agent Alexander Litvinenko in London in 2006.. And New York was also out of the question, as Deripaska had been denied a U.S. visa on several occasions before he travelled to the United States in August and October 2009.. Hong Kong did not give RUSAL an easy ride. Approval was conditional on retail investors being left out due to risks from RUSAL's $14.9 billion debt and legal issues. WHY PARIS? In Paris, French regulator AMF has yet to give the go-ahead for RUSAL to list on Euronext. If the decision is cleared, RUSAL would list its Global Depositary Shares in Paris, priced in euros or dollars and representing 20 Hong Kong shares. Paris also has a special segment of the market reserved for professionals and not retail investors, where listing requirements are less strict than on the main market. Banking sources say Paris could have been the suggestion of BNP Paribas, which, with Credit Suisse, is RUSAL's IPO bookrunner. BOOKRUNNERS' ROLE BNP Paribas is not a conventional choice for Russian firms, which lean more often toward Citi, Goldman Sachs or Morgan Stanley for their IPOs. While some might view the deal as a breakthrough for BNP, some banking sources say this is not necessarily the case. The French lender is one of the most exposed of 70 Western banks that agreed a $7.4 billion debt restructuring deal last month. BNP could have agreed to lead the IPO by default since it is meant to help pay the debt back. CORNERSTONE INVESTORS AND FREE FLOAT The IPO has attracted heavyweight investors including Nathaniel Rothschild's investment company and Paulson & Co, the U.S. hedge fund run by billionaire John Paulson. In Russia, Kremlin-loyal Deripaska has secured the participation of state bank VEB, prompting analysts to suggest the IPO was partly a disguised state bailout. Investors will buy shares before a public listing and promised to hold them until a later date, unlike Hong Kong property group Cheung Kong Holdings, which may invest $100 million without a lock-up period. Investors like Cheung Kong will determine the ultimate size of the free float. It is already unlikely to go above half the offering, or just under 5 percent of RUSAL's charter capital. EAST OR WEST? Bankers close to the deal say no split between Hong Kong and Paris has yet been defined. Some bankers and fund managers say RUSAL's IPO may open the door for a flood of Russian listings in Hong Kong and that trend would be supported at the highest political level. But some argue that, should the free-float be substantial, trading may ultimately shift to Paris for practical reasons. Although global banks can guarantee client order execution 24 hours a day, Russia-focused clients would still prefer Paris rather than Hong Kong due to the smaller time difference. "Chinese companies listed in Hong Kong have a premium valuation because they are Chinese companies," said Kevin Dougherty, who manages over $45 million worth of assets at the Pharos Russian Fund. "I am very sceptical that a similar premium would be given to non-Chinese companies simply because they are listed in Hong Kong." (Additional reporting by Olga Popova and Oksana Kobzeva in Moscow, Marcel Michelson in Paris and Kennix Chim in Hong Kong, Writing by Dmitry Zhdannikov; Editing by Rupert Winchester) Printable version larger | smaller Business