Norilsk May Buy Some Shares From Market After Ruble Collapse

OAO GMK Norilsk Nickel, Russia’s largest mining company, may offer to buy shares from minority shareholders after the ruble’s worst collapse in almost 17 years drove investors from Russian assets.

Share purchases wouldn’t come at the expense of dividends, billionaire Chief Executive Officer Vladimir Potanin said late on Thursday in Norilsk. The option is theoretical and hasn’t yet been discussed, he said.

Norilsk shares rose 50 percent in ruble terms last year, while slumping 14 percent in dollar terms. A drop in the price of oil, Russia’s biggest export, and sanctions imposed by the U.S. and Europe over the deadly conflict in neighboring Ukraine have pushed the economy toward recession and led to a selloff of assets.

“We may consider an option to purchase some shares from the market, in which the main owners won’t participate, as a means of supporting our share price because the company is fundamentally undervalued,” Potanin told reporters. “The dividend payment is more preferable to the government in terms of taxes.”

The metal producer agreed to pay out no less than $2 billion, or half of its earnings before interest, taxes, depreciation and amortization, in annual dividends as part of a shareholder agreement between its main investors: Potanin, United Co. Rusal and billionaire Roman Abramovich. The deal was signed in 2012 and updated last year.

Dividend Payment

At the end of October, Norilsk announced an interim dividend payment of about $2.78 billion, which was paid in rubles in accordance with Russian legislation. The ruble weakened 29 percent in the last two months of 2014, reducing the dividend payment in dollar terms. Norilsk doesn’t have to compensate for that, according to Potanin.

The shareholder agreement fixes the exchange rate at the moment the board approves the dividends, Potanin said.

“Even as the ruble weakened significantly between the interim dividend announcement and the actual payment, we aren’t obliged to compensate for that or boost the final dividend payment for 2014,” he said.

Norilsk doesn’t plan to review its dividend policy on ruble volatility or to delay a portion of the promised payments to later years as it is allowed by the agreement, Potanin said.

Price Recovery

The price of copper has fallen 22 percent in the last 12 months while nickel has risen 0.3 percent. While Potanin expects copper prices to recover in 2016, the company’s revenue from exports this year may decline to $10 billion should metals prices remain unchanged. “On the profit level, it will be compensated by ruble weakening,” he said.

Norilsk continues talks with Russia’s central bank about purchasing palladium stocks, Potanin said. The company planned to borrow from U.S. banks to fund the transaction, but rates have risen in recent months, he said.

The company is comfortable with its debt after it refinanced a portion of it in 2014, Potanin said. “We see that the cost of our borrowings increased by 50 to 100 basis points, but the credit markets are still open for us,” he said. Even if Russia’s sovereign rating will be reviewed by S&P, it doesn’t automatically mean that Norilsk’s rating will be downgraded, according to the billionaire.

“We are actively working with rating agencies to keep our investment rating even if Russia will be downgraded,” he said. “We saw such examples in the past and hope that it is possible.” Norilsk also doesn’t have any covenant that requires it pays down debt should the rating be changed.

Potanin said the government didn’t ask the company to sell more dollars to support ruble. “We didn’t change the amount of currency we sell on the market, but we agree with the government, that we can sell the currency in smoother curves, avoiding peaks in sales. And it will be beneficial to us.”

Before it's here, it's on the Bloomberg Terminal.