Deripaska Offers to Cut En+ Stake in Bid for Sanctions Relief

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Deripaska Offers to Cut En+ Stake in Bid for Sanctions Relief

  • Billionaire agreed ‘in principle’ to cut holding below 50%
  • Deripaska may end Rusal shareholder agreement, Kommersant says
Oleg Deripaska Photographer: Andrey Rudakov
Photographer: Andrey Rudakov

Oleg Deripaska offered to make concessions on his ownership of En+ Group Plc, which owns almost half of Russian aluminum giant United Co. Rusal, as he seeks to cast off the yoke of U.S. sanctions.

The Russian billionaire agreed “in principle” to cut his stake in En+ to less than 50 percent and plans to resign from the company, according to a statement on Friday. Deripaska intends to keep some stake in En+, and the proposal is contingent on the U.S. removing sanctions, according to a person familiar with the matter.

Deripaska is seeking to persuade the U.S. to roll back sanctions that blacklisted Rusal and En+ from Western markets and fueled chaos in the global supply chain for aluminum since they were announced April 6. The U.S. Treasury on Monday said it would weigh Rusal’s petition for delisting and extended a wind-down period for contracts. It’s not clear whether the concessions will be enough to satisfy U.S. authorities.

While Deripaska’s En+ interest translates into ownership of less than half of Rusal, he effectively controls the aluminum producer under an accord with other major shareholders including Sual Partners and Glencore Plc. The agreement gives En+ the right to propose half of the directors to Rusal’s board and to nominate the chief executive officer, according to the metals company’s annual report.

Messy Divorce

Deripaska is in talks with his Rusal partners on breaking off the shareholder agreement, Kommersant reported Saturday, citing unidentified people. Without a significant reduction in ownership, that may not satisfy the U.S., as he and fellow billionaire Viktor Vekselberg -- who was also sanctioned April 6 -- together have a controlling stake.

The press services for Rusal and Vekselberg’s Renova Group declined to comment.

Brian O’Toole, senior fellow at the Atlantic Council who previously worked in the Treasury’s sanctions unit, said that a move by Deripaska to reduce his En+ stake to just below 50 percent is unlikely to lead to the U.S. releasing the company from sanctions. Still, lobbying on the Trump administration to reach a deal could have an impact, he said.

"I don’t see any way he can retain a significant stake and still have it come off the list," he said. "This will take several iterations. I think it is going to be a messy divorce."

En+ Shareholding Structure

As of Jan 1 2018

Source: annual return filed to Jersey Financial Services Commission

*controlled by Oleg Deripaska

QuickTake: Tangled Rusal Ownership Thwarts Easy End to Sanctions

While the Treasury previously said the path to sanctions relief was through divestment and relinquishment of control of Rusal by Deripaska, a reduction in the percentage of ownership by a sanctioned individual wasn’t necessarily a basis for delisting, a spokesman said earlier this week. In response to questions Friday, a Treasury spokesman said the department has no further guidance regarding entities controlled by Deripaska.

People familiar with the matter have said that Deripaska plans to keep control of Rusal, Bloomberg reported on Thursday. In recent days, he’s reshuffled top managers to focus attention on the sanctions, and plans to remain directly involved, said the people, who asked not to be identified.

Deripaska agreed in principle to reduce his En+ stake at the request of Chairman Greg Barker, a former U.K. climate change minister, according to the statement. That meeting took placed in Moscow on Thursday, one person said. Deripaska also agreed to change the board to have a majority of independent directors.

Deadline Extension

In the statement, En+ said it’s asking the U.S. Office of Foreign Assets Control to extend a license that allows U.S. investors to sell its debt and equity to Oct. 31. The current deadline is May 7.

Metal markets reacted to speculation that supply chain problems could soon be resolved. Aluminum prices fell 2.3 percent on Friday on optimism supply chain problems could soon be resolved. On Saturday, En+ shares jumped as much as 20 percent in Moscow trading, to the highest level in more than a week. Rusal advanced as much as 3.8 percent.

“The devil is in the details. Will he actually go through with it?” said Tai Wong, head of base and precious metals trading at BMO Capital Markets in New York. “It seems more likely than not that an extreme aluminum crisis has been averted. Is it smooth sailing from now? No.”

Commercial Pressure

Some companies that expected Rusal’s aluminum and alumina to start flowing again rapidly this week have been disappointed. In some cases, buyers who have long-term contracts said they were ready to restart purchases, but were kept waiting by Rusal, according to people familiar with the matter, declining to be named discussing confidential business matters.

“You can see the commercial pressure that has been directed at U.S. authorities to resolve the issue, and this may very well be a neat solution,” Anthony Woolich, partner at Holman Fenwick Willan LLP in London. “Similar things have been done before, so that could well work in theory."

As of Jan. 1, Deripaska controlled more than two-thirds of En+ through three holding companies, according to an annual return filed with the Jersey Financial Services Commission.

Other shareholders include Valentin Yumashev, the son-in-law of late Russian President Boris Yeltsin; Yumashev’s daughter Polina, who Deripaska married in 2001; and Citi (Nominees) Ltd., a unit of the U.S. bank which manages the company’s global depository receipt program.

— With assistance by Susanne Barton, and Mark Burton