London court rules in favour of sanctioned Deripaska in Norilsk Nickel oligarch showdown

London court rules in favour of sanctioned Deripaska in Norilsk Nickel oligarch showdown
A London court ruled in favour of Deripaska in his conflict with Potanin over what to do with Norilsk Nickel’s free cash / bne
By bne IntelliNews June 28, 2018

The London High Court resolved the case involving billionaire Russian shareholders of Norilsk Nickel metals major in favour of sanctioned Oleg Deripaska (controls Rusal aluminium major), ruling that Roman Abramovich (controls Crispian Investments) breached the shareholder agreement when selling 2.1% stake in Norilsk Nickel to fellow oligarch Vladimir Potanin's Interros.

In March the sale of the stake flared up the old shareholder conflict in one of Russia's largest metal miners, with Deripaska's Rusal (32.9% in Norilsk Nickel) said it would initiate a "shootout" procedure with Potanin's Interros (holds 32.9% in Norilsk Nickel and heads the company) as means of solving sharp disagreements over the management of Norilsk Nickel‘s cash flow.

Both Deripaska and Rusal were named in the April 6 round of sanctions by the US Treasury, making the expensive billion-dollar shootout with Interros highly unlikely and forcing Deripaska to withdraw his nomination for Norilsk Nickels’ board. But now the company could have a chance to gain an upper hand in Norilsk Nickel capital cheaply as a damaged party in the ruling.

The breach of the shareholder agreement by Potanin and Abramovich could give Deripaska's Rusal, as the damaged party, the right to acquire a 7.5% stake in Norilsk Nickel with 25% discount, or buy 1.875% of Norilsk Nickel shares for $1 (current market price of RUB33bn or about $0.5bn), Vedomosti daily commented. 

Rusal, which welcomed the decision of the London court, did not yet comment on whether it will expand its stake in Norilsk Nickel. Nor did Interros yet comment whether it will appeal the ruling.

Analysts surveyed by Kommersant daily commented that now Crispian will have to return the $750mn raised from selling 2.1% Norilsk Nickel state to Interros, and doubt that Abramovich's company will now be able to find other buyers to the shares with such a high premium.

"Interros increased its stake in Nornickel to 34% by buying 1.5-1.6% of its shares from the market (on top of Abramovich's stake), which raised investor concerns over dividends and a change of weights on the board of directors," Aton Equity reminds on June 28.

The analysts believe that the court's decision strengthens Rusal's (coverage suspended) position and returns the status quo between the main shareholders. However, "the ruling could lead to another round of conflict between the major shareholders and weigh on Norilsk's shares, although the disputes so far have had no effect on its operating activity," Aton warns.

BCS Globak Markets argues on June 28 that "the [London court] verdict confirms our take that the shareholder agreement and more importantly the dividend policy [of NorNickel] will remain unchanged until at least December 2022."

As a result, Norilsk remains one of the most attractive dividend stories across the Russian universe with a 12% mark-to-market dividend yield, BCS estimates, seeing the development as Positive.

Previously in London Deripaska argued that he was unaware of Crispian's plans to sell 4% out of its 6.2% stake in Norilsk Nickel to Interros, as it evoked "10 unpleasant years" of cooperation with Potanin and him "playing games" at the shareholder meetings this year, according to Vedomosti daily and the Financial Times.

The conflict between Potanin and Deripaska came out of a row over what to do with Norilsk Nickel’s free cash flow, with the former arguing in favour of higher investment and the latter of more dividend payments.

"We definitely see the world differently. Shareholders want more dividends. Managers want more capex…," Potanin was quoted by the Financial Times as saying and claiming that "the dividends he [Deripaska] expects are too high.” 

In response Rusal commented that Norilsk Nickel’s dividend policy was “an essential part of the shareholders agreement to which Mr Potanin has agreed”, which improved its market capitalisation and was supported by a majority of research analysts. Rusal also slammed Potanin's "capex ambitions" as dealing with "very risky mega projects, which lock Norilsk into being a resource company.” 

In December 2012, a dispute between Rusal and Interros was resolved through the signing of a shareholder agreement between the two parties and with the introduction of an arbiter shareholder, Crispian Investments Limited, controlled by London-based billionaire Roman Abramovich. Neither Vladimir Potanin nor Roman Abramovich are currently on the board of Norilsk Nickel.