Kremlin says nationalising sanctioned aluminium major Rusal on the table

Kremlin says nationalising sanctioned aluminium major Rusal on the table
Temporary nationalisation of Russian aluminium major Rusal is possible, Kremlin's spokesman Dmitri Peskov told the press
By bne IntelliNews April 19, 2018

"Temporary nationalisation" of Russian aluminium major Rusal is one of the possible means of supporting the company badly hurt by the latest round of US sanctions, Kremlin's spokesman Dmitri Peskov told the press on April 19.

As Rusal's shares continued its free fall and the company is being cut out of its exports markets, the Federation of Independent Unions and Russian Union of Entrepreneurs and Industrialists suggested that the state could buy out the shares of sanctioned companies.

Last week oil and commodities trader Glencore declared force majeure on some aluminium contracts after the US Treasury sanctions targeted Russia’s Rusal aluminium major.

Glencore is the largest buyer of Rusal’s aluminium and holds a 8.75% stake in Rusal. Previously the stake was planned to be swapped for shares of Rusal parent En+, but these and other operations were abruptly discontinued due to sanctions against Rusal, En+, and other businesses of Russian tycoon Oleg Deripaska.

Previously the Finance Ministry of Russia said that it would support Rusal with short-term liquidity, but unconfirmed reports suggested that the government will stop short of acquiring excess metal for state reserves. Rusal employs almost 60,000 people in Russia and accounts for about 16% of the country’s export earnings.

"The sanctions are likely to have a profound effect on the designated companies, which would be unable to transact in US dollars," Fitch Ratings wrote on April 13, reminding that around 80% of Rusal aluminium major's total revenues in 2017 came from sales outside of Russia, including 10% directly to US customers. 

In addition to the reduced trading activity, some designated companies may be unable to service their US-denominated debt. Rusal already warned of a possible technical default on its bonds last week that set of a wave of selling in its stock and other companies controlled by its owner Oleg Deripaska.

As for the pledged state support, the likelihood, mechanisms and longevity of possible support extended by the Russian Finance Ministry remained unclear to the rating agency.