Norilsk Discounted as Billionaire Feud Ignited: Russia Overnight

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

OAO GMK Norilsk Nickel, the Russian metals company at the center of a dispute between two billionaires, tumbled in New York to the cheapest level versus emerging-market mining stocks since 2010 after its conflict with United Co. Rusal intensified.

The world’s largest producer of nickel and palladium sank

2.2 percent to a one-month low yesterday, the biggest decliner on the Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. The gauge lost 0.5 percent to the lowest level in two weeks, as futures expiring in December on the RTS Index in Moscow slipped 0.7 percent to 146,460.

Rusal’s billionaire Chief Executive Officer Oleg Deripaska has been embroiled in a conflict with Norilsk’s billionaire shareholder Vladimir Potanin since 2008. The world’s biggest aluminum producer owns 25 percent of Norilsk and has objected to share buybacks by the company, which is supported by Potanin. A regional court ruled in favor of Rusal on Oct. 9, declaring Norilsk’s $4.5 billion buyback at the end of 2011 illegal.

“There is nothing positive about any shareholders conflict,” Yuriy Vlasov, an analyst at JP Morgan Chase & Co. who has a rating equivalent to sell on Norilsk’s Moscow-listed shares, said by phone from Moscow yesterday. Rusal’s court victory spurred the “market’s negative reaction,” he said.

The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, slid 0.9 percent to $28.68 in New York yesterday. The RTS Volatility Index advanced 1 percent to 28.68.

‘Escalation’ of Conflict

Norilsk’s American depositary receipts traded at 7.8 times estimated earnings yesterday, compared with an average multiple of 12.9 for companies on the MSCI Emerging Markets Materials Index, the biggest discount since December 2010, according to data compiled by Bloomberg. The company’s shares traded on Moscow’s Micex Index fell 1.7 percent to 4,822 rubles, or $154.79.

“We consider both Norilsk and Rusal’s statements as escalation of the shareholder conflict,” Valentina Bogomolova, an analyst at UralSib Financial Corp. in Moscow, who recommends investors hold Norilsk stock, wrote in a research note dated yesterday. “Our worst case is for Rusal to win all cases and Norilsk to have to pay it compensation.”

Norilsk’s board “had no right to approve the buyback” in September 2011 because the plan wasn’t approved by the government’s Commission on Foreign Investments, Rusal said in an Oct. 9 statement. Norilsk spent $9 billion for several buybacks of its shares and American depositary receipts in 2011 and their value since then has fallen to $5 billion, according to Rusal.

Alcoa Forecast Cut

Bloomberg’s Russia-US index fell to 97.70, the lowest level since Sept. 26. Alcoa Inc., the largest U.S. aluminum producer, cut its forecast for global consumption of the metal by 1 percentage point yesterday, citing slowing Chinese demand amid a faltering global economy.

Platinum futures for January delivery dropped 1 percent to $1,678.50 an ounce on the New York Mercantile Exchange, while palladium futures for December delivery retreated 1.3 percent to $649.90 an ounce.

Polyus Gold International Ltd., Russia’s biggest producer of the metal, fell 1.8 percent to $3.36 in New York, the weakest since Sept. 10. The company’s stock lost 0.7 percent to 1,023.90 rubles, or $32.87, in Moscow yesterday. In London, the shares dropped 0.5 percent to 216 pence, or $3.46.

ADRs of OAO Mechel, Russia’s largest producer of steelmaking coal, retreated 1.6 percent to $6.73 in the U.S. yesterday, the lowest level since Sept. 6. The company’s Moscow-traded stock fell 1.6 percent to 212.80 rubles, or $6.83.

MegaFon IPO

Rusal declined 2.3 percent to 175.85 rubles in Moscow, leading declines on the benchmark Micex Index. Rusal lost 1.6 percent to HK$4.37 at 10:49 a.m. in Hong Kong trading. The MSCI Asia Pacific Index fell less than 0.1 percent.

OAO MegaFon, Russia’s second-largest wireless carrier by customers, sought to reassure investors a day after making an initial public offering filing that revealed Goldman Sachs Group Inc. would no longer be on the share sale.

“Corporate governance is very important to MegaFon,” MegaFon spokesman Petr Lidov said by e-mail yesterday. “We decided to launch the IPO on October 9 and we are working with banks that were ready to go ahead with us on that date.”

Oil, which together with natural gas accounted for 50 percent of Russian budget revenue in 2011, decreased 1.2 percent to $91.25 a barrel on the New York Mercantile Exchange. Prices are down 7.7 percent this year. Brent for November settlement slid 0.2 percent to $114.33 on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, gained 0.2 percent to $112.56 a barrel.

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