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  • Aug 1, 2014
  • Updated: 2:07am

Rusal adds Robert Kuok as cornerstone investor

PUBLISHED : Wednesday, 30 December, 2009, 12:00am
UPDATED : Wednesday, 30 December, 2009, 12:00am

After months trying to add a famous Asian investor to its planned US$2 billion Hong Kong share sale, indebted Russian aluminium giant Rusal has signed up Malaysian tycoon Robert Kuok as a cornerstone investor, according to people connected to the deal.

Rusal was close to securing sovereign wealth fund China Investment Corp as a long-term backer. However, this fell through because CIC did not want to be locked into Rusal for the six months required of cornerstone investors in Hong Kong, people involved in the deal said.

A spokesman for Kuok's conglomerate vehicle Kerry Group, which also owns the South China Morning Post, declined to comment.

The Securities and Futures Commission has banned retail investors from participating in the share sale. While the regulator gave no specific reason for doing so, Rusal's cornerstone investors, which also include European financier Nathaniel Rothschild and United States hedge fund billionaire John Paulson, appear to be swallowing a lot of risk.

The aluminium firm, controlled by Russian oligarch Oleg Deripaska, owes its banks US$14.7 billion after it gobbled up rivals during the commodities boom of 2007.

Rusal faced bankruptcy last year before winning a life-saving debt restructuring deal with its 72 lenders early this month.

Initial research from Rusal's financial advisers and independent stockbrokers obtained by the Post shows analysts are deeply split on the firm's future financial health, with some predicting it will have to sell assets or raise cash after the share offer.

A Macquarie report, which is only published in draft form and has not been made public, forecast that Rusal 'will require some capital injection or asset sale' to meet its debt repayments.

The note was dated December 7. Rusal signed its debt restructuring deal on December 3.

The Australian bank said Rusal needed to pay a minimum of US$3 billion to its foreign lenders, which are owed US$7.3 billion, by 2011. But Macquarie added Rusal would not generate enough free cash - money left over after business expenses - to meet these payments unless depressed global aluminium prices rose above the bank's own forecasts.

The analysts said that to repay its debt, Rusal must generate US$1.045 billion in free cash flow next year and US$1.37 billion in 2011. They also forecast Rusal needed aluminium prices to stay at or above US$2,300 per tonne during this period to hit that target.

As the global financial crisis has caused aluminium to pile up in warehouses all over the world, Macquarie reckons the metal's price will only hit US$1,984 next year and US$2,094 in 2011.

It is unclear whether Rusal sanctioned these forecasts. A Macquarie spokesman said the report might change substantially before the final version was sent to potential investors.

Other analysts have published conflicting accounts of Rusal's future debt payment schedule.

London stockbroker Liberum Capital, in a research note dated December 22, says Rusal will generate US$7 billion of free cash in the next four years and 'meet its financial obligations with Russian and international lenders'.

BOC International puts a very different complexion on Rusal's borrowing conundrum. It says the firm's foreign lenders have asked it to repay US$5 billion of its US$7.3 billion debt by the end of 2013.

BOCI says if Rusal cannot meet this target, it will repay the international banks in warrants - rights to buy shares at a set price in the future.

Rusal owes US$4.5 billion to Russian government-owned bank Vnesheconombank and US$2.98 billion to other Russian lenders.

Banks also have wildly different estimates of what Rusal is worth.

BOCI values the company at up to US$26.7 billion. Renaissance Capital, a London stockbroker, values it at US$24.4 billion.

Additional reporting by Howard Winn

Credit crunch

Rusal is under pressure to repay its debts to foreign banks totalling, in US$: $7.3b

Hot Metal

A comparisons of the revenue and debt of Rusal, the world's biggest aluminium producer

Revenue (US$b):

2007: 13.58

2008: 15.58

2009: 8.34

2010: 11.38

2011: 12.54

Debt (US$b):

2007: 8.39

2008: 13.17

2009: 14.93

2010: 11.63

2011: 10.01

Source: Renaissance Capital

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