Li pledges US$100m in Rusal offering as strategic investor

Li Ka-shing is testing his seemingly magical investment powers by buying into indebted Russian aluminium giant Rusal's HK$20.13 billion initial public offering.

The billionaire, known as 'Superman' to the army of Hong Kong investors who track his every move, has signed up as a cornerstone investor in the controversial deal. Li will buy US$100 million worth of Rusal's stock through Cheung Kong (Holdings), a spokeswoman for the firm said.

The Securities and Futures Commission has banned retail investors from participating in the offering, which will be the first listing of a major Russian company on the Hong Kong exchange.

Rusal, which has US$14.9 billion of debt, warned in its offering prospectus that it 'may cease to continue as a going concern' if it is forced to make accelerated payments on its vast borrowings.

But Li is not the only big name to pledge cash to Rusal. Aristocratic European hedge fund manager Nathaniel Rothschild, New York hedge fund billionaire John Paulson and Malaysian tycoon Robert Kuok will buy HK$6.86 billion of the Russian company's stock between them and hold it for at least six months under a lock-up provision.

The Hong Kong exchange's listing committee had postponed its decision on whether to give Rusal the approval three times before waving the deal through last month.

The committee forced Rusal to race against the clock to complete a life-saving deal to restructure its mammoth debt pile with over 70 international and Russian lenders.

Li subscribed to HSBC Holdings' emergency rights issue in March last year, when the bank offered investors five shares at HK$28 each for every 12 they held. Subscribers to the rights issue have made a 222 per cent return. But not everyone agrees with Li that Rusal's shares are set to soar.

Independent International Investment Research of Britain said Moscow-based Rusal's plans to expand production capacity had been shelved indefinitely to preserve cash. The research house said Rusal could not pay dividends until 2013 because of debt covenants.

'Everybody thinks there's an element of risk in this issue and will want to see this fairly reflected in the price,' said Andrew Sullivan, a sales trader at MainFirst Bank.

One banker involved in the deal said institutions had not subscribed to all the shares yet but felt that this 'will not take long'.

Professional investors participating in Rusal's share offer must spend at least HK$1 million.

Retail investors can buy the shares in the secondary market, but the SFC has ruled they can only be traded in board lots worth HK$200,000 to deter amateur punters from buying in.

Rusal chairman Oleg Deripaska has been hit by media reports of alleged links to organised crime. The company denies any such links.

The firm is also battling a London lawsuit from Russian businessman Mikhail Cherney, who claims he was a business partner of Deripaska and that he owns 13 per cent of Rusal.

Bloomberg, citing an unidentified source, said Cheung Kong's Rusal shares would not be locked up.

Superman's returns

Li Ka-shing's cornerstone investments over the past two years

Evergrande Real Estate Group

First day of trade: November 5, 2009 Opening price (HK$): 3.50 First-day return (%): +34.3 Return so far (%): +11.7

Sino-Life Group

First day of trade: September 9, 2009 Opening price (HK$): 0.72 First-day return (%): +44 Return so far (%): +92

HSBC Holdings rights shares

First day of trade: April 9, 2009 Opening price (HK$): 28 First-day return (%): +5.27 Return so far (%): +222

China Railway Construction Corp

First day of trade: March 13, 2008 Opening price (HK$): 10.70 First-day return (%): +12 Return so far (%): -3.7