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Rusal Slumps Over Clash Between Russian Tycoons: Hong Kong Mover

United Co. Rusal CEO Oleg Deripaska
Oleg Deripaska, chief executive officer of United Co. Rusal. Photographer: Simon Dawson/Bloomberg

United Co. Rusal fell to a two month-low in Hong Kong after its chairman quit citing disputes with controlling shareholder Oleg Deripaska about dividends and asset sales at the debt-laden aluminum producer.

Rusal fell 4.1 percent to HK$5.87 for its lowest since Jan. 20. The benchmark index fell 0.2 percent. Rusal has declined 12.5 percent in the past six months.

Victor Vekselberg, Rusal’s third-largest holder, quit as chairman citing disagreements with Chief Executive Officer Deripaska over the billionaire’s refusal to sell a 25 percent stake in OAO GMK Norilsk Nickel. Vekselberg sided with Mikhail Prokhorov, the second-biggest holder, to push for a sale of the stock, saying it would help reduce debt and aid expansion.

“Investors are concerned about Rusal’s corporate governance,” said Richard Gao, a Hong Kong-based analyst at Guosen Securities Co. “The resignation is not because of how big of a crisis the company is in but because of Vekselberg’s disagreements with Deripaska.”

Rusal may elect an independent chairman on March 16 when it’s due to hold a board meeting, Deripaska said yesterday on a conference call. “The chair won’t get cold,” he said.

“Due to the actions of its management, Rusal is presently facing a deep crisis,” Vekselberg said in a statement. “Rusal deteriorated from an international aluminum leader into a company overburdened with debt.” Rusal completed an $11.4 billion debt refinancing in October.

Deepening Conflict

Vekselberg’s exit shows a deepening conflict among shareholders over the investment in Norilsk, Russia’s biggest miner. Deripaska, who controls 47.4 percent of Rusal, has snubbed three offers since October 2010 to divest the Norilsk shares, saying it’s a long-term “strategic” holding.

“Relations between Oleg Deripaska and Vekselberg have worsened materially over the last year,” brokerage Troika Dialog said yesterday. Alfa Bank said minority holders have grown “uncomfortable” and “could be incentivized to exit their stakes,” adding that such an option wouldn’t be viable in the “current market environment.”

Deripaska would consider buying Vekselberg’s stake in Rusal should he decide to sell, the CEO said on the call. Vekselberg’s Sual Partners Ltd. holds a 15.8 percent interest, which would be valued at about $1.9 billion at the current market price, according to data compiled by Bloomberg. “We have the right of first refusal,” Deripaska said.

Sual Partners has no current plans to sell, spokesman Andrey Shtorkh said by telephone from Moscow.

Russia’s Richest

The departure of Vekselberg, chairman since Rusal took over his SUAL Group in 2007, “preempted the anticipated consideration of this matter by the board,” Rusal said in a statement. The billionaire, ranked Russia’s 10th-richest person by Forbes magazine last year, hasn’t attended a board meeting in person since February 2011 and “failed to perform his functions as a public-company board chairman,” the aluminum company said.

“The resignation of Mr. Vekselberg will not have any material impact on the business of the company, will not have any significant influence on the company’s operational and financial results,” the Moscow-based aluminum producer said in a separate statement.

Share Slump

Rusal’s depositary receipts fell 3.5 percent to 230.88 rubles at the close in Moscow yesterday. Rusal has slumped 45 percent in Hong Kong trading since its initial public offering in the city in January 2010, and pays no dividend as it seeks to curb borrowings.

Vekselberg, together with partners including Len Blavatnik, started buying shares of aluminum companies in the 1990s. The partners’ aluminum empire grew into SUAL Group, which by 2006 was Russia’s largest producer of the metal after Deripaska’s Rusal. Their combination created the world’s top aluminum maker.

Vekselberg has “basically received no returns” since the 2007 takeover, said Valentina Bogomolova, an analyst at UralSib Capital in Moscow. “Vekselberg’s frustration is understandable because he can neither cash out nor affect decision-making as Rusal is a one-man show.”

Deripaska, 44, has hung on to Rusal’s Norilsk stake, even as Vekselberg urged the sale of the shares for $18 billion last year, two people with knowledge of the matter said Sept. 20.

Rusal Debt

Concern that Rusal’s debt was too high led Hong Kong regulators to delay its IPO at least twice, and the company was barred from marketing the shares to individual investors. Rusal cut its borrowings by selling stock to investors including Hong Kong billionaire Li Ka-shing.

In December, the company promised to pay a premium to lenders should its ratio of net debt to earnings before interest, tax, depreciation and amortization exceed 4. It was 3.9 at the end of September, according to Morgan Stanley. Rusal may cut output by 6 percent in the next 18 months amid declining aluminum prices, Deripaska said in January.

Rusal produced 4.1 million metric tons of aluminum in 2010, according to data compiled by Bloomberg Industries. Aluminum for three-month delivery on the London Metal Exchange has averaged $2,223.98 a ton this year, compared with $2,421.39 last year.

Deripaska controls his stake in Rusal through EN+ Group Ltd. and Prokhorov has 17 percent through Onexim Holdings Ltd. Andrey Belyak, a spokesman for Onexim Group, declined to comment.

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