Putin wades into Norilsk Nickel fight

By bne IntelliNews August 21, 2012

bne -

In a surprising move, President Vladimir Putin said on August 20 that he hopes the long-running shareholder conflict at Norilsk Nickel will be resolved soon. His sudden decision to step into a conflict that appears to be simmering down prompts speculation that the government may be ready to plug the hole in the Kremlin.Inc portfolio.

Currently, Oleg Deripaska's RusAl owns 25% in Norilsk Nickel and Vladimir Potanin's Interros a 28% stake. A shareholder row over control of the company started in June 2010, when RusAl lost a seat on the board as Interros increased its control. RusAl accused Interros of ruining agreed board parity, and the board of directors of a vote fraud.

That has seen the company mired in a tussle for control from both shareholders, which has impacted company performance, while high-priced offers and counter offers were bandied about between the pair last year. The government has continually stressed that it would not get involved, despite widespread speculation over the years that it wants to use the company as a base for a metals & mining national champion, the most obvious missing piece in the Kremlin's portfolio.

The conflict has scaled back recently as the warring parties agreed on several principal points. Rusal managed to put five of its candidates on the board, cost/capex cuts have been hammered out, and dividends and buybacks have been approved by both parties, Putin's move to address the issue now is intriguing. It is also hard to tell what exactly the president means by "resolution" of the conflict.

The Russian media cites "unnamed sources" close to the presidential administration as saying that a preliminary scenario has already been developed by the Kremlin. Under that plan, both major shareholders could be forced to sell part of their stakes, with a state-owned bank among the suggested buyers.

Reflecting the lack of clarity which has reigned over the giant Norilsk in recent years, analysts are split on the move. Some express some concern over the effect of government interference on the Russian investment climate, and note that while media also suggests an international mining major could be invited to take a stake, in reality there are few genuine candidates right now.

"It would not be easy for the government to literally force one of the shareholders or both shareholders to sell their stakes without damaging the Russian investment climate," point out Alfa Bank analysts. "We also do not see any real potential buyers for the conflicting shareholders' shares, as at the current market cap, Interros and Rusal's combined stakes are worth over $15bn."

At the same time, others suggest relief that the government is finally ready to step in to halt a process that has deterred Norilsk "from unveiling its growth potential," as VTB Capital puts it. "It looks as though the latter factor has become a concern to the government, which seems to be the natural arbiter in this case."

Uralsib, meanwhile writes that although greater involvement on the part of the Kremlin could revive the company, that clearly puts minority shareholders at risk. 'We see potential resolution of the drawn-out shareholder conflict as positive for Norilsk Nickel's corporate governance," the analysts opine. "However, we are concerned about the government's intervention in the process and are not sure the optimal solution will be chosen, and that minority interests will be protected. The most preferable scenario for minorities would be the involvement of an international mining major, as this could improve Norilsk's operational expertise and government influence would be kept at the current level."

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