March 17, 2013 7:58 pm

Norilsk peace pays dividends for Rusal

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Rusal will be able to service its debts for the next four and a half years thanks to the dividends the company is set to receive from Norilsk Nickel, according to Oleg Deripaska, chief executive of the world’s largest aluminium producer.

The comments underscore the importance for Rusal’s finances of the peace deal between Mr Deripaska and rival tycoon Vladimir Potanin brokered in December by Roman Abramovich, which put an end to the oligarchs’ four-year feud.

The agreement made Mr Potanin chief executive of Norilsk but also paved the way for greater dividend payments from the company, in which Rusal holds a 27.8 per cent stake.

Since the financial crisis, the Russian aluminium giant has struggled under the weight of a $10.8bn debt pile and a tumble in global aluminium prices. At $8.1bn, its market capitalisation is now less than the value of its stake in Norilsk.

Mr Deripaska denied Mr Abramovich, owner of Chelsea Football Club, had acted in the interests of the Kremlin, which was keen to engineer an end to one of Russia’s most acrimonious corporate disputes.

“It was pure business,” he said. He joked that Mr Abramovich was attracted to Norilsk, the world’s largest producer of nickel and palladium, because of the “high cost of running Chelsea”, and could use dividends from the company to fund his investments in modern art.

Mr Deripaska made the remarks in an interview with the Financial Times that ranged from the Moscow Pussy Riot trial to the state of the Russian banking sector and the need to break up Gazprom, the energy giant.

Rusal’s plight is not unique in the aluminium indusry. Years of oversupply have created a huge overhang of stocks, causing benchmark aluminium prices on the London Metal Exchange to fall 42 per cent from their July 2008 high of $3,380 a tonne.

The fall in prices helped to push Rusal to a full-year net loss of $55m in 2012. Having received an extension of its covenant holiday last autumn, the company must make payments of $465m to Russian lenders this year and $1.5bn to domestic and international lenders in 2014.

However, it expects to receive $557m in dividends from Norilsk this year, a further $835m both next year and in 2015, and 50 per cent of Norilsk’s profits from 2016 onwards under the terms of the peace deal with Mr Potanin, according to a company presentation.

Mr Deripaska said Rusal was dealing with the oversupply in the market by cutting production capacity by 10 per cent this year, and called on other producers such as Rio Tinto, Norway’s Norsk Hydro and Alcoa of the US to do the same. “It’s a move that the whole industry should follow to resolve this stock problem,” he said.

Nonetheless, he predicted that the aluminium industry would enjoy a return to profitability, with global demand for the metal to rise to around 56 million tonnes in 2015, compared to 47.4 mt last year. He said that Rio Tinto and BHP Billiton, under pressure from shareholders to reduce their exposure to the metal, would be making a “huge mistake” if they sold their aluminium assets.

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