Russia 091204 Basic Political Developments

Bloomberg: Deripaska Discusses Economy, Aluminum

Bloomberg

LONDON — Billionaire Oleg Deripaska said Thursday that Russia needed to reduce its reliance on foreign borrowing and exports and focus on building a more stable domestic market to stimulate economic growth.

“I don’t believe in export-engine growth,” Deripaska said in an interview. “It’s important for us to find a new growth model. In the past, we borrowed a lot from abroad. We need more stable growth on the domestic market.”

The government’s anti-inflation drive, which helped the Central Bank reduce rates nine times since April, will be key to reviving economic growth from next year alongside a revival in domestic lending, Deripaska said.

“There’s a lot of improvement in Russia,” Deripaska said, praising the work of Prime Minister Vladimir Putin and President Dmitry Medvedev since the start of the economic crisis. “Still, it will be a very challenging 18 months ahead of us.”

He also said his United Company RusAl, the world’s largest aluminum producer, would not restart shuttered capacity while demand for the lightweight metal is still recovering.

“Our policy is very responsible,” said Deripaska, RusAl’s majority owner and chief executive.

RusAl and competing aluminum producers cut output this year after commodity prices slumped. RusAl, which is seeking to sell shares in an initial public offering in Hong Kong this month, said in February that it would curtail 500,000 tons of annual output, or 11 percent of total capacity.

Aluminum has declined 36 percent from a record $3,380 a ton in July 2008.

But commodity investors have “realized that aluminum is the best hedge against the dollar and energy resources,” Deripaska said. “People don’t believe in the dollar, and commodities benefit.”

Russian aluminum demand is rebounding and will rise 15 percent to 20 percent next year, said Deripaska, who also controls automaker GAZ Group.

“There is a new stimulus program more or less, cash for clunkers, which will create a lot of demand for our commercial vehicles,” he said.

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  RusAl said in a statement that co-owner Mikhail Prokhorov agreed to exchange $1.82 billion of the company’s debt for a 6 percent stake as part of a $16.8 billion restructuring.
  

The accord values RusAl at $30.3 billion, Bloomberg calculations show.

The remaining $880 million of RusAl debt held by Prokhorov will be restructured on the same terms applied to international lenders — on a “pay-if-you-can” basis for the first four years and a refinancing over the following three.

RusAl’s restructuring is the biggest in Russian corporate history, involving more than 70 domestic and foreign banks. It cuts total debt to $14.9 billion and removes a barrier to the IPO.

Under the restructuring, RusAl said it would pay a reduced interest rate of 8 percent to 9 percent on $2.1 billion of loans with Russian banks including Sberbank, VTB Group and Gazprombank.

FT.com: Tycoon brushes off potential Rusal delay

By Richard Milne and Neil Buckley in London

Published: December 4 2009 02:00 | Last updated: December 4 2009 02:00

Oleg Deripaska yesterday insisted it was "no problem" if the $2bn initial public offering of UC Rusal, the Russian tycoon's aluminium group, was delayed into next year.

In an interview with the Financial Times, Russia's former richest man brushed off concerns that the decision by the Hong Kong Stock Exchange to delay until next week a crucial ruling on the listing could push the flotation into 2010.

"No problem. We have very good cash flow," Mr Deripaska said. He declined to comment further on the timing of the IPO because of listing rules but said he was not under pressure from its more than 70 creditor banks to list before the end of the year.

Mr Deripaska added that the turmoil surrounding Dubai World - another company investors had thought had the implicit backing of the state - was "not at all" affecting sentiment for what would be one of the biggest listings in emerging markets in recent months. He classified the situation in Dubai as a "family disagreement" inside the United Arab Emirates.

Rusal this week concluded a landmark restructuring of its nearly $17bn debt owed to several dozen creditors - including $7.4bn owed to international banks - with Mr Deripaska managing to retain his controlling stake, in a move that paves the way for the IPO to go ahead. Mr Deripaska ran into trouble after buying a stake in Norilsk Nickel at the top of the market last year.

He has benefited from substantial state support, including a $4.5bn bail-out from VEB, the Russian development bank. But Mr Deripaska stressed that this support was in the form of a loan with hefty 8 per cent interest.

"It is the most profitable investment of the Russian central bank," he joked. "It is mutually profitable cooperation."

Mr Deripaska added that Rusal was of huge importance to Russia because of its ownership of strategic assets and its role in providing employment and social infrastructure in Siberia. He denied the support was due to him personally but said his status could have speeded up the process.

Mr Deripaska defended the fact that he had retained control through the restructuring. He suggested that the way his management had built the company into the world's biggest aluminium producer before the global financial crisis, and its handling of the effects of the crisis, had demonstrated its "management capability".

"I think [creditors] realised the unique position of Rusal, in terms of our cost structure, in terms of our assets."

The Rusal chief insisted that a London lawsuit brought by Michael Cherney, a former business partner, claiming he is owed 13 per cent of Rusal, was a personal matter and posed no risk to the company or potential investors.

"First, it is crap," Mr Deripaska said of the suit. "Second, it is nothing to do with the company."

The hearing committee in Hong Kong is expected to scrutinise Mr Deripaska's partnerships in the Russian aluminium industry in the 1990s in part because of the lawsuit.