RUSAL sees refinancing deal within 6 months

　　RUSAL (0486.HK), the world's largest aluminum producer, expects to reach a deal with lenders within six months to refinance part of an $11 billion debt burden and will agree new loan conditions by the end of 2012, before its covenant "holiday" expires.

　　RUSAL's head of equity and strategic development, Oleg Mukhamedshin, said the aluminum giant, which has been battered by persistently weak prices for the metal, was already in talks with existing and new lenders.

　　"We can probably generate sufficient cash to meet all our debt obligations next year, but obviously we are in discussions with our current lenders and some potential new lenders to provide a refinancing facility," said Mukhamedshin, the 39-year-old executive who led RUSAL's multi-billion dollar debt renegotiations at the height of the financial crisis.

　　"We will find a solution for the covenant by the year end, and the refinancing solution can come after six months or so," he told the Reuters Russia Investment Summit on Tuesday.

　　RUSAL started a covenant holiday in March, striking a deal which means that its financial covenants, or conditions on its current loan agreements with international and Russian lenders, would not be tested for up to 12 months.

　　Mukhamedshin said that tough market conditions meant a bond issue was not on the cards for RUSAL, whose net debt stood at $10.85 billion at the end of June. The aluminum giant has to repay some $1.3 billion next year, with $460 million falling due in the first half. Mukhamedshin said the exact size of the refinancing would depend on cash generation.

　　"We have $600 million of cash, if we use all of this for debt repayment, we need to refinance another $600 to $700 million, but it all depends on what happens with our cash flow over the next 12 months," he said.

　　Aluminum prices touched a three-year low in mid-August, after falling more than 10 percent in the second quarter on concerns about weakening global demand for the metal.

　　At current prices, roughly 20-25 percent of global aluminum production is loss-making, he said.

　　"That is why we think more cuts will follow. There are only two places in the market that continue to increase production. China ...which is trying to give subsidies to some aluminum smelters that are under water, contradicting their own policy, and the Middle East."

　　Benchmark aluminum on the London Metal Exchange (LME) closed at $2,105 per tonne, up from $2,080 Monday.

　　NO JOB CUTS

　　Weak aluminum prices have forced RUSAL to target cuts of 150,000 tonnes of aluminum capacity by the end of 2012, or about 4 percent of expected 2012 output.

　　This is part of a review of 275,000 tonnes of capacity that could be replaced by cheaper smelters being built in Siberia.

　　"It has a certain social impact and we are working to keep people employed, trying to extend the production chain up to value-added projects," Mukhamedshin said.

　　RUSAL, along with many other aluminum and steel producers, is trying to produce higher margin products to protect itself against weak prices.

　　Currently, premium products such as aluminum for car bumpers or metal for military aircraft, accounts for 38 percent of RUSAL production. But the group hopes to increase that to 50 percent "over the next several years".

　　It hopes the boost, betting on increasing Russian car production and a bid to replacing ageing military aircraft, will also help avoid job losses.

　　"We are not going to fire anyone - that is a commitment," Mukhamedshin said.

　　RUSAL reported a net second-quarter loss of $37 million in August, including a $167 million impairment related to its Friguia alumina refinery in Guinea.