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ANALYSIS |
 Russian aluminum giant UC RUSAL will be able to pay dividends by spinning off only a part of its 27.8% stake in metals giant Norilsk Nickel into a separate company along with a part of debt, which arose after its acquisition in 2008, analysts said.
Recently, Maxim Sokov, CEO of En+ Group, which is controlled by RUSAL CEO Oleg Deripaska, said that the company may soon resume negotiations on the spinning off the stake from the balance of RUSAL as a step toward the aluminum producer resuming paying dividends.
En+ owns 48% of RUSAL, whose 27.8% holding in Norilsk Nickel is valued at about $8.7 billion. RUSAL may make its first payout since 2008 as soon as 2017 as the aluminum market recovers, Sokov said.
The dividend may come “even sooner should RUSAL shareholders decide on the spinoff of the Norilsk stake together with some debt,” Sokov said. “There are no active discussions on this subject right now, but the idea is not dead. We still may see such discussions initiated.”
A representative of En+ said PRIME that there are no negotiations on the spinning of the stake in Norilsk at the current moment. “It is only a hypothetical situation, which may accelerate the start of dividend payments by RUSAL”.
“It is likely that shareholders of RUSAL will obtain one share of a company, which will hold 27.8% of Norilsk Nickel and part of RUSAL’s debt, per each share in RUSAL. It is likely to be this way”, said BCS analyst Oleg Petropavlovsky.
“Spinning off a part of Norilsk Nickel’s stake will allow the aluminum producer to pay dividends without breaking its debt covenants”, said Rye, Man & Gor Securities analyst Andrei Tretelnikov.
RUSAL refused to provide commends.
The Price Tag
RUSAL acquired the stake in Norilsk Nickel before the crisis in April 2008 from businessman Mikhail Prokhorov. For the acquisition, RUSAL raised $4.5 billion syndicated loan with foreign banks using the stake as collateral under the loan. In November 2008, RUSAL refinanced the loan with VEB, after that, the loan was again refinanced with Sberbank in October 2010. RUSAL’s current debt stands at about $10 billion.
Taking into account the current price of Norilsk Nickel, RUSAL stake is estimated at $8.8 billion, while RUSAL’s market value stands at slightly above $9 billion. Sokov considers the company seriously underestimated by the market.
“We still see significant potential for further growth,” Sokov said, adding that En+ wasn’t considering de-listing RUSAL from Hong Kong, following analyst speculation at the beginning of the year. “It was obvious that RUSAL was fundamentally undervalued by the market and it would be quite natural for shareholders to consider taking the company private.”
“Spinning off that interest to shareholders would cut that debt and prompt the market to revalue RUSAL”, said Kirill Chuyko, chief of equity research at BCS Financial Group.
Petropavlovsky said that the deal would be profitable for RUSAL in current market conditions. “The main question is the size of the debt, which will be transferred in a new company”, he said.
Tretelnikov highlighted the uncertainty about the party, which will finance the transaction and from what funds.
Needs All the Parties Approval
Tretelnikov also mentioned that the implementation of the above-mentioned idea needs approval not only shareholders of UC RUSAL, but also the main shareholder of Norilsk Nickel - Vladimir Potanin.
RUSAL and Vladimir Potanin’s Interros Group are the main shareholders of Norilsk Nickel. After the continuous conflict, these shareholders had come to a peacefull agreement in December 2012 through the intermediary of businessman Roman Abramovich. According to the conditions of the agreement, Interros and RUSAL have agreed not to reduce their stakes in Norilsk Nickel below 20% before 2017. For the violation of the agreement the penalties are envisaged.
“Any agreement may be changed with the consent of all the parties. It is necessary to agree on the shareholder structure change in Norilsk Nickel with all the parties. Currently, it is difficult to discuss it, because it is only the idea”, said Sergei Donskoi from Societe Generale.
A representative of Interros declined to comment on the spin off, adding that all operations with the stocks have to be made in the frameworks with the shareholder agreement.
RUSAL is a leading, global aluminum producer. The company’s main products are primary aluminum, aluminum alloys, foil and alumina. RUSAL is a completely vertically intergrated aluminum company with assets right through the production process – from bauxite and nepheline ore mines to aluminum smelters and foil mills. RUSAL operates in 19 countries on 5 continents. The company’s main shareholders are Oleg Deripaska’s En+ Group with about 48.1% stake, Mikhail Prokhorov’s Onexim Group with 17% stake, Leo Blavatnik and Viktor Vekselberg’s SUAL Partners controlling 15.8% stake, and Glencore’s Amokenga Holding owning 8.75%. About 10% is free float.
Norilsk Nickel is the largest nickel and palladium producer. Vladimir Potanin’s Interros owns 30.3% in the company, UC RUSAL owns 27.8%, Alisher Usmanov’s Metalloinvest controls 3.5%, and Crispian Investments of Roman Abramovich owns about 6% in the company. Crispian Investments also has a right to vote with additional 15% stake, controlled by Interros and RUSAL, under the shareholder agreement.
End
23.09.2014 15:09
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