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Re: INSIGHT - RUSSIA - loooong conver with Deri...

Released on 2012-05-10 01:00 GMT

Email-ID 5471016
Date 2009-02-03 14:49:07
Don't laugh, but.... bc he is still called "son" by Putin... (or so he
His saving grace may be that Deri has too many connections abroad that are
useful to the Kremlin (like into European banking or African/Asian

Peter Zeihan wrote:

omg -- deri's done

lauren, grab whatever free trips you can from him

when an oligarch who insists that he is too big to fail he has entered
his final days

does he not realize that his empire is closed for the recession? how
could he possibly think he's important anymore?

Lauren Goodrich wrote:

**purple parts seem most important to me...
Though there is a hell-of-a-lot-a info in here for us to consume on
some of the most important businesses/ppl in Russia and parts of the

PUBLICATION: certain parts and put in a different way, yes
ATTRIBUTION: Stratfor sources in the Moscow


What is apparently emerging in the corridors of power is a massive
transfer of privately held shares to the State that will enable some
oligarchs to escapethe risk of restructuring imposed by their bankers.
If this operation succeeds it will once again be a matter of "nice
work if you can get it".


Potanin and Deripaska are both in tough financial positions. Deripaska
has the opinion that he is "too big to fail"... meaning that the
Russian government can hardly do otherwise than help him (and Potanin
as well).


So there has been an intensification around a possible merger of
Norilsk and Rusal, but things have taken an unexpected turn since the
very public meeting on Jan. 13 in the Kremlin which was attended by
Medvedev, Deripaska, Potanin (Interros), Prokhorov (Onexim), Usmanov
(Metalloinvest), Vekselberg (Renova), Voloshin (new Norilsk board
chief), Chemezov & Seching.

The most probable outcome will be a merger of the two plus
Metalloinvest and the metallurgical assets of Rostekhnologii (which
means VSMPO Avisma). The State would hold 25% "plus". It is a highly
irrelevant set-up, but when has that mattered.

But the scene changed a few days later when Potanin let it be known
that he had communicated new proposals to the government with a view
to establishing a Russian equivalent of the Australian mining giant
BHP Billiton, an idea that is becoming increasingly obsessive in

The idea(which is co-authored by Oleg Deripaska and backed by Viktor
Vekselberg) consists of merging around Norilsk Nickel several
metallurgical groups such as Metalloinvest, Mechel, the Evraz Group
and even the potassium producer Uralkali that is currently the subject
of a serious politico-financial battle.


Meanwhile, it is worth noting that Rusal no longer features in this
potential make-up, because Deripaska doesn't wish to give up control
of the aluminium group in these conditions if it means" sacrificing"
his shareholding in Norilsk.

The brilliant idea behind this new proposal is that Potanin and
Deripaska are suggesting that the State take over the debts of the
companies concerned in exchange for a minimum golden share in the new
conglomerate -- a suggestion that apparently did not figure on the
agenda of the 13 January meeting in the Kremiln.

In a separate proposal, Deripaska suggested that the State convert
Rusal's six billion dollar debt to Russian public banks (of the
group's estimated $17 billion total debt) to "preferential non-voting


Plain and simple, the mega merger plan as concocted by Potanin does
not have any clear industrial logic. Clearly, for some oligarchs the
proposal made to the State is more like a last lifeline than a
coherent and convincing industrial plan. Integrating steelmakers like
Mechel and Evraz in a structure made up by Norilsk, Metalloinvest and
VSMPO Avisma is a very complex undertaking whose synergies are not
patently obvious.


The media's reference to the Australian group BHP Billiton must be put
into perspective. The Russian press puts the stock exchange
capitalization value of the mining and metallurgical group advanced by
Potanin and Deripaska at $70 to 100 billion. In the present financial
circumstances this would be jumping the gun.

If the present value of Norilsk Nickel, Mechel, Evraz and Uralkali
were added together the sum of $14 billion is reached. Supposing that
the Metalloinvest group were valued at $5 billion (one-third of its
valuelast summer) the sum of $20 billion is reached to which may be
added the metallurgical assets of Rosteknologii that are difficult to
assess since, apart from VSMPO Avisma, it is not easy to comprehend
its make-up. However, in spite of the fall in raw materials, BHP
Billiton is still worth around $1 hundredbillion and the Brazilian
group Vale more than $60 billion or so. Moreover, BHP Billiton was
built up over time andover the course of 20 years has integrated
assets, mostly Australian and SouthAfrican. Besides, it is well known
that it decided against a hostile takeoverof Rio Tinto.


Norilsk is the main purveyor of wealth and jobs in the Krasnoyarsk
region and in the Russian Far North, very difficult areas that cannot
endure the consequences of mass unemployment. The same goes for Rusal
that controls all Russia's aluminium mills in Siberia and in the
Urals. But these two groups are experiencing difficult times due to
the spectacular fall in metal prices. On 20 January, the Norilsk
Nickel managing director Vladimir Strzhalkovsky indicated that he was
expecting revenues of $8 million in 2009 compared to $14.3 billion
expected in 2008, a fall of 44%.

Of course their business analysts believe a net loss of 530 million
dollars on the basis of an average price of $12,000 a tonne in 2009,
down from $21,000 in2008. Their view is, "we see no reason to hold
Norilsk equity".

Rusal must also absorb the fall in aluminium prices and manage
considerable indebtedness, much of it contracted from foreign banks.
This is a state of emergency that is behind the return of Derispaska
to Rusal's operational management when he replaced his old friend and
associate Alexandre Bulygin on 18 January. His analysts estimate that
a ton of aluminium produced in Rusal foundries in Russia costs $2.000
while the current price of the metal is about $1,500 a ton.


By the way, why leave out of the picture two other important Russian
steelmaking groups like MMK and Severstal? Why not invite to the
wedding Iskander Makhmudov's UGMK that operates in the copper sector?
In any case, on 20 January, Alexandre Abramov, the chairman of the
Evraz group (and along with Roman Abramovich its main shareholder) is
not in favor such a tie-up. He said that half of his debts had already
been the subject of a restructuring move and that he was not in any
great hurry to divest other assets.


In a word, this means therefore that some of the major Russian
oligarchs want to put a new winning formula into play: they acquired
these groups during the wave of privatization moves between 1995 and
1997, sometimes thanks to "Loan for Share" a scenario invented at the
time by Vladimir Potanin.

The system enabled oligarchs to loan money to the Russian government
in exchange for taking as security some of the country's most
promising industrial assets (and notably Norilsk Nickel). Today they
are suggesting a complete reversal of that system: after having cashed
in billions of dollars in dividends since 2005 and hidden away a part
of the cash flowing from the companies they control into offshore
structures, they are now simply suggesting that the State take them
back by converting "stocked" debts into shares in Russian companies,
some of which are quoted on the LondonStock Exchange. . .

They/We all wager that Sechin and Chemezov are so obsessed by the idea
of creating a Russian BHP Billiton controlled by the State (and by
extension by them) that they would be ready to make this gift to the


Sechin and Chemezov are within an inch of succeeding. Moral hazard
counts for little in Russia. Those who in the Kremlin and the White
House champion the State taking control of the metallurgical and
mining assets that they consider to be strategic will examine
Potanin's proposal without scruples. The exact amount of the
indebtedness of the companies concerned is not known but even if it is
evaluated at around $20 - 25 billion, converting it into shares
reserved to the State is tempting: no cash involved, the prospect to a
return to better times from the second half of 2009 and the guarantee
a stranglehold on the country's most important metallurgical and
mining assets at knockdown prices while sparing those, at least
temporarily, Deripaska.

Lauren Goodrich
Director of Analysis
Senior Eurasia Analyst
T: 512.744.4311
F: 512.744.4334


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Lauren Goodrich
Director of Analysis
Senior Eurasia Analyst
T: 512.744.4311
F: 512.744.4334