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Rusal stays with debt issue

Although there is talk of Rusal floating, its finance chief Vladislav Soloviev tells Edward Russell-Walling the aluminium giant does not need to tap the capital markets just yet.
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Rusal may have other reasons for choosing not to become a public company just yet, but it certainly is not desperate for the money. Aluminium prices have been sky-high, and the company recently secured a $1.5bn syndicated loan, the largest ever for a Russian company.

The business is a product of the grisly aluminium ‘wars’, which followed privatisation of Russia’s alumina smelters. Oleg Deripaska and Roman Abramovich emerged as victorious owners of the largest assets and, in 2000, merged them to create Russian Aluminium, now Rusal. Mr Abramovich has gradually sold his 50% stake to Mr Deripaska’s Basic Element, to concentrate on other interests, such as Chelsea Football Club.

Today Rusal is the world’s third-largest producer of primary aluminium, after Alcoa and Alcan, though it has ambitions to rise to number one. It accounts for 75% of Russia’s aluminium production and about 10% of the world total.

Flotation talk

Last year, there was much talk of an initial public offering (IPO) for Rusal, possibly in London. Investor interest in Russian equity was high, Russian companies saw foreign listings as a protection against domestic political interference, and Rusal CEO Alexander Bulygin told reporters a year ago that a flotation was “the most likely tool” to fund the company’s expansion.

Since then, Moscow’s financial regulator has made it harder for companies like Rusal to list abroad without first listing at home, and aluminium prices have almost doubled, though they have latterly come off their peak.

The company has overhauled its accounting, improved its transparency and has been smartening up its corporate governance in anticipation of any flotation. “As a company, we are prepared for it, as soon as the shareholder decides, but there are no plans for such a decision,” says Vladislav Soloviev, Rusal’s CFO and a former deputy head of the Russian Federation’s tax policy development department. “We have enough equity in our company and enough resources to finance our project programme.”

Capital spending

Although Rusal is not tapping the capital markets right now, it has a considerable capital spending programme, both to expand existing smelters and to build new ones. Spending for this year alone will total $2.5bn, Mr Soloviev says.

Bauxite is mined and refined to produce alumina, which is then smelted to produce aluminium. Last year, Rusal produced 3.9m tonnes of alumina and 2.7m tonnes of aluminium. It wants to grow that to 8m tonnes and 5m tonnes respectively by 2013. As Russia does not have huge bauxite reserves, Rusal recently acquired privatised mining operations in Guinea and Guyana, and has bought a stake in an Australian alumina producer.

Capacity at the company’s four existing Siberian smelters and at a number of refineries is being expanded. Rusal has a joint venture with RAO Unified Energy Systems, Russia’s largest power utility, to build a new smelter at Boguchanskaya together with a hydroelectric scheme, at an estimated cost of $3.6bn. Completion is planned for 2009. “As with all our capital projects, this will be financed by debt and equity in a ratio of 70 to 30,” Mr Soloviev explains, adding that the debt will take the form of non-recourse bank loans.

Other projects include new smelters at Khakas and in Irkutsk, as well as a possible greenfield project in Tajikistan. So Rusal’s capital requirements are extensive. With current debt standing at $2.9bn, it has issued a limited amount of debt in its domestic market, and last September placed Rbs6bn ($222m) in three-year bonds.

“We have not issued any international bonds,” Mr Soloviev says. “Because we are a private company, we do not want to open our accounts.” And, with banks eager to join Rusal loan syndicates and advance project finance, he adds, the company does not need to go to the international capital markets.

International loans

International banks are another matter. In 2004, Rusal signed an $800m structured aluminium pre-finance loan, through bookrunners Citigroup and BNP Paribas. Earlier this year, it raised another $687.5m through syndication (increased from the original $500m after oversubscription).

The company mandated ABN AMRO, Bank of Tokyo Mitsubishi UFJ, BNP Paribas, Calyon, Citigroup and Natexis Banques Populaire to arrange its latest $1.5bn loan, which will be split equally between five- and seven-year tranches, at 1.1% and 1.4% over Libor. The funds will be used principally to refinance existing debt, as well as for capital investment.

Banking interest in the transaction was such that the original amount sought was increased by 40%. At press time, with an order book of $2.6bn, Rusal was discussing a further increase in the facility amount. Even at $1.5bn, it sets a new record for Russian companies borrowing from international markets.

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