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Rusal may offer stakes to Chinese firms for IPO support

(China Daily/Agencies)
Updated: 2009-11-14 10:07

Russian billionaire Oleg Deripaska's aluminum producer United Co Rusal may offer stakes in smelters and mines to Chinese companies to ensure the success of its initial public offering in Hong Kong, analysts said.

The world's largest maker of the metal plans to sell a 10-percent stake to help repay more than $14 billion of debt. Rusal may seek to win Chinese State-owned companies as investors by offering production joint ventures and access to raw materials, said Chris Weafer, chief strategist at UralSib Financial Corp, and Eric Kraus, a strategy advisor at Otkritie Financial Co.

"The only way that Rusal can get a high valuation is if it gets a couple of big State-backed anchor investors," Weafer said in Moscow. "Chinese companies usually only buy if they can leverage this by getting access to projects or strategic assets."

Access to Rusal's output would help China, the largest aluminum user, to secure supplies as its own production is curbed by comparatively higher costs. A deal may also cement a deepening trading relationship between the countries. Russian Prime Minister Vladimir Putin, accompanied by a delegation including Deripaska, visited China last month to clinch oil, natural gas and nuclear deals for more than $100 billion.

Rusal, which intends to proceed with the IPO, can't go ahead without first agreeing on a debt restructuring with foreign creditors, according to two people familiar with the situation who declined to be identified because the debt talks are private. A postponement would mean delaying the offering until at least March to allow for Chinese lunar New Year, one of the people said.

Rusal plans to win over seven or eight major customers in China to secure long-term deliveries of aluminum, Rusal's Head of Strategy Artem Volynets said by e-mail in response to questions from Bloomberg News.

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"We will secure contracts with large consumers or provide our potential partners access to the raw material resource to jointly develop them," Volynets said.

Rusal's debt almost doubled last year after it bought 25 percent of OAO GMK Norilsk Nickel, Russia's biggest mining company, for $7 billion in cash and a 14-percent Rusal stake. Commodity prices subsequently collapsed, and Rusal had a net loss of $6 billion last year, Vedomosti reported last month. Rusal received $4.5 billion from Vnesheconombank in October 2008, the biggest State bailout of any Russian company.

Rusal is in talks with potential investors including China Investment Corp, a Chinese sovereign wealth fund, and Singaporean fund Temasek Holdings Pte, the Hong Kong Economic Journal reported last month. State-controlled Aluminum Corp of China Ltd, also known as Chalco, looked at the IPO and decided against buying a stake, Caijing magazine reported Oct 12.

Rusal also may obtain a higher valuation in Hong Kong compared with other locations.

The company said last week it agreed to a six-year contract to supply defense company China North Industries Corp with 1.7 million metric tons of aluminum. In February 2008, Rusal signed an accord to build a 500,000-ton factory in China and mining complex in Guinea with China Power Investment Corp. "Currently, Asia is where the money is," Weafer said.