Fight over Norilsk sparks back into life as Vekselberg quits Rusal board

By bne IntelliNews March 13, 2012

Graham Stack in Moscow -

Oligarch Viktor Vekselberg announced in a press release on March 12 that he has resigned as chairman of the world's largest aluminium company, Hong-Kong listed Rusal, warning that the company is in "deep crisis." The move brings the long-winded struggle for control of Norilsk Nickel back to the fore, but offers little clarity on a possible resolution.

"It is with great regret that I have to state that, due to the actions of its management, UC Rusal is presently facing a deep crisis, as a result of which UC Rusal has, in my opinion, deteriorated from an international aluminum leader into a company overburdened with debt and entangled in numerous lawsuits and social conflicts," Vekselberg, who owns a 15.8% stake through Sual Partners, says in the statement.

"As chairman and director, I disagreed with a number of decisions in relation to the company's strategic development, modernization of production and social and human resources policies, some of which were adopted by management without board approval and in breach of shareholder agreements. In view of this, I do not consider it appropriate to maintain my current position as the chairman and a director of UC Rusal's board."

Trading in the stock was suspended in Hong Kong on the morning of March 13, after its share price fell 1.3% to HK$6.12.

Rusal responded with a statement in which it claimed the company had intended to fire Vekselberg anyway for "failure to perform his function as a public company board chairman," including failing to attend board meetings.

Rusal has officially been run according to an intricate shareholder agreement since a merger with Sual in 2007. However, Vekselberg's executive position was believed to be little more than a formality, with majority owner Oleg Deripaska actually running the company. Therefore, the resignation in itself is unlikely to have a significant impact on Rusal.

Deripaska through his En+ structure currently holds a 47.4% stake in Rusal, but has all the rights of a controlling shareholder, including a majority on the board. Oligarch Mikhail Prokhorov holds 17.3% though Onexim, whilst 8.75% is owned by Swiss commodities trader Glencore through Amokenga Holdings. With management retaining 0.26%, that leaves a free float of 10.75%.

However, the spat is not so much over Rusal itself as the 25% stake it holds in Norilsk Nickel. Deripaska has been fighting a long and vicious battle with fellow oligarch Vladimir Potanin over control of Norilsk, the world's largest nickel producer. However, battered by the crisis, Deripaska has lost ground, allowing Potanin to team up with Norilsk management to offer a buy out to Rusal more than once in the last 12 months.

With Rusal up to its ears in debt, both Vekselberg and Prokhorov have clearly signaled their readiness to sell the stake, saying it would allow Rusal to ease its debt load, resume investment in growth projects, and pay dividends. However, despite the high valuation offered by Potanin, Deripaska has sternly refused, saying he regards Norilsk as a strategic asset.

Speculation has come and gone throughout the titanic struggle that it is connected to government plans to use Norilsk as a base on which to create a national metals & mining champion - the one major sector lacking in the Kremlin's portfolio. Whilst the government has insisted it will not get involved unless absolutely necessary, the subtle signs have been building that it does not favour a Deripaska victory.

There have also been other issues that have created rifts on the Rusal board. A contract with Glencore which was vetoed by Sual was forced through by Deripaska, whilst the relationship between the Bogoslovsk Aluminum Plant and Vekselberg's KES Holding, which supplies it with electricity, has been under enormous strain.

Analysts suggest that pressure may now be mounting on Deripaska, in part thanks to Prokhorov's enhanced political profile on the back of his presidential election campaign, and subsequent suggestions from Vladimir Putin that he could be invited to join the government. However, a speedy resolution at Norilsk remains unlikely for now.

"Deripaska is unlikely to give in to pressure, meaning a sale of the Norilsk stake is only slightly more likely than was previously the case," believes Alfa Bank analyst Barry Ehrlich. "Norilsk's focus is on payouts, not on acquiring this stake, we believe. We expect no near-term solution to either the Rusal shareholder conflict or the Rusal Norilsk holding issue."

"The news could spark noise over the sale of the stake of Sual Partners at some point, which emerged following the rejection of Norilsk's offers last year," suggest VTB analysts.

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