Left to right: Felipe Portillo, Simon Aird, Nick Koemtzopoulos, Mark Echlin, Vikram Khanna, Sam Andrew

Aluminium giant Rusal's IPO listing on the Hong Kong stock exchange - a first for a Russian company - left the Credit Suisse team managing the deal biting their nails right up until the start of trading. Writer Edward Russell-Walling

A few contrarian souls may actually have believed that Rusal's initial public offering (IPO), when it finally happened, would be a run-of-the-mill affair. Absolutely not. The Hong Kong debut of Russia's aluminium empire was a cliffhanger all the way to the first day of trading - when the share price promptly went over said cliff. That it succeeded at all is a measure of the company's adamantine determination.

Ever since Rusal emerged from the gory aluminium wars of the 1990s as the industry's dominant regional power, bankers have been running their slide rules over its flotation potential. Serious IPO talk has ebbed and flowed around the company since 2005, when tentative plans for a London listing were aborted. A more concrete attempt in 2007 was scrapped as the credit crunch took hold. This followed the merger of Rusal with Russian rival Sual and the alumina interests of Glencore - a deal which included a commitment to float within three years.

Flotation foiled

Bankers say that the 2007 IPO was actually pulled because the company got involved in talks to acquire 25% of Norilsk Nickel, something which could not appear in any prospectus. That acquisition and the debt incurred to pay for it added to the company's growing desperation to float.

New York was never going to be a likely home for Rusal's shares since Oleg Deripaska, its principal shareholder, had been denied a US visa (since granted) on a number of occasions. London, a more realistic listing venue, was risky thanks to the lawsuit brought by former associate Michael Cherney against Mr Deripaska and now before the English courts. Added to that, the political temperature between London and Moscow has been cooling.

So Rusal turned to Hong Kong, with a supplementary global depositary receipt listing on Euronext, for an IPO led by global co-ordinators and sponsors Credit Suisse and BNP Paribas. The pair also acted as core bookrunners alongside Bank of America Merrill Lynch and Bank of China International, with additional bookrunners in the shape of Nomura, Renaissance Capital, Sberbank and VTB Capital.

The bankers insist that Hong Kong was not merely the default choice. "China is a key market for the company, so it made strategic sense to go to Hong Kong," says Nick Koemtzopoulos, a London-based Credit Suisse managing director responsible for equity capital markets in Russia and central and eastern Europe. China is indeed the world's largest consumer of aluminium and, as Credit Suisse points out, Rusal's closest global comparable - China's Chalco - is listed in Hong Kong and Shanghai.

Nor was it the soft option, as it turned out. "Because this was the first Russian company to list in Hong Kong, it was a big learning process for the regulator and everyone else," says Mark Echlin, head of industrials in Credit Suisse's investment banking department. "The idea that Hong Kong's is an easy, light regime is simply not true."

Rush to Hong Kong

Preparations began in the summer of 2008, but a firm decision to go for a Hong Kong listing was only taken in August 2009. The idea was to list before Christmas, thereby honouring Rusal's commitments, but that was always going to be a tall order.

Step one was to file an A1 prospectus with the Hong Kong Stock Exchange, which was done on October 1. The team knew it would take a minimum of four weeks for the exchange's review to complete, and its timetable was predicated on the very minimum of objections. With typically two weeks of investor education, a two-week roadshow and an obligatory week's delay between pricing and listing, it was possible to squeak in before the Christmas slowdown - but only just.

Some might not even have tried, but it was clear that Mr Deripaska had assured some very important people back in Russia that the deal would be done before the end of 2009. The Hong Kong authorities were not about to be stampeded, however. This was a Russian business, for starters, one that had suffered from the fall in aluminium prices with plunging 2009 profits, and was massively indebted.

As the A1 was submitted, those debts were in the process of being restructured. Chief among them was a rolling one-year $4.5bn loan from Russian state bank VEB - chairman of supervisory board, one Vladimir Putin. Incurred to acquire, and secured on, the 25% stake in Norilsk, the loan matured in October and was of some concern to the exchange. On top of that was another $10.2bn of debt spread among some 70 international creditors and Russian banks.

In October the restructuring had yet to be confirmed, though it seemed more or less in the bag. "It was always clear that without a financial restructuring there could be no IPO," says Mr Echlin. "The regulators had a lot of questions about how the restructuring was evolving and when it would be finalised."

The exchange had a lot of questions about a number of issues and the team had to make more than one appearance before the listing committee. "It's not unusual not to pass the first time," points out Simon Aird, Credit Suisse's Hong Kong-based head of syndicate for non-Japan Asia. "But the committee was being diligent and careful and wanted to protect the retail investor base. This was one of the most rigorous processes we have experienced, and the size of the prospectus reflects that."

The team worked through the committee's comments, and Mr Deripaska reportedly had a meeting with Hong Kong chief executive Donald Tsang on December 8. But then it simply ran out of road. "We didn't want to list on December 23," says Mr Aird. "And that turned out to be a blessing in disguise."

Come the new year, equity markets suddenly improved. Aluminium prices enjoyed an uplift and investors came back to their desks with renewed appetite. "Coming in January gave us momentum," says Mr Aird.

In the nick of time

The debt restructuring was finally signed in early December and the finalised prospectus was filed on December 31, narrowly escaping a situation where the half-year numbers it contained went stale. One unusual feature was that, for the purpose of working capital calculations, a range of likely share prices had to be included in the prospectus before the issue was marketed to investors - before the publication of any research and without the benefit of investor feedback. The range was HK$9.10 ($1.17) to HK$12.50 per share.

The prospectus, offering 10.6% of the company's enlarged share capital, ran to more than 1100 pages and was obliged to carry warnings in red ink outside and inside about Rusal's debt and profitability. The issue could not be marketed to retail investors and, to make sure, there would be minimum allocations of HK$1m apiece. Pre-marketing started on Monday January 4, with 15 syndicate analysts holding some 600 meetings across the US, Asia and Europe. The message was that Rusal, the world's largest aluminium producer, was a play on rising aluminium prices and its position as the lowest cost producer.

A local twist

Buttressing the offer was a quartet of 'cornerstone' investors. This is a Hong Kong twist which allows certain investors to receive a pre-agreed, guaranteed allocation in return for disclosure and a six-month lock-up. They were VEB (taking a morale-building 30% of the offer), Paulson & Co (4%), Nathan Rothschild's NR Investment (4%) and the Kuok Group (just under 1%).

By now the favourable winds had begun to subside. The Hang Seng index fell by more than 6% during the roadshow, along with Rusal's key comparable stocks - Chalco (down 12.7%) and Alcoa. But the offer was getting the right kind of attention and was eventually 'several times' oversubscribed. Chalco's share price weakened in week two and, when the Rusal pricing took place on 21 January, it was around the mid-point, at HK$10.80, raising $2.24bn. That represented 11.7 times 2010 EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortisation) and a 14.8% premium to Chalco's 10.2 times. As Hong Kong's first Russian listing it might well have expected a significant discount.

It wasn't over yet. The stock had to wait another week before listing and the start of trading. It was a "brutal" week, in Mr Aird's words, as the market came off another 6%. On day one, Rusal's shares closed 10.6% down.

And yet Rusal had pulled off the largest Russian metals and mining IPO ever, and the largest IPO out of Russia since 2007, against considerable odds. "This has opened up a world of possibility for emerging market and international companies to look at Hong Kong as a broad, deep, acceptable exchange to list on," says Mr Aird.

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