Monday, 20 August 2007

Serious business as usual in the silly season

Financial News

Letter from Moscow

Jason Corcoran

20 August 2007

The Russian silly season is in full swing. A submarine has planted a flag on the Arctic seabed, former President Mikhail Gorbachev is the face of luxury luggage label Louis Vuitton and President Vladimir Putin has been photographed fishing topless with Prince Albert of Monaco.

The August vacation may be well under way but some serious business is being conducted from Moscow as billionaire Oleg Deripaska generates enough news to power one of his aluminium plants.

With Putin on an adventure holiday in Siberia, his favourite oligarch has taken centre stage with several bold moves. Deripaska, whose estimated $20bn fortune includes Rusal, one of the world’s largest aluminium companies, looks set to take over privately owned oil company RussNeft and has emerged as a 5% shareholder in US carmaker General Motors.

Basic Element, Deripaska’s holding company, is seeking regulatory approval to buy RussNeft after its owner, Mikhail Gutseriyev, resigned, claiming he was forced out in a campaign by police and tax authorities.

Commentators have speculated that Basic Element is a vehicle for the purchase and RussNeft might end up in the hands of state-owned Rosneft or Gazprom.

Deripaska’s holding in General Motors is part of a spending spree in the automotive industry, including the UK’s LDV Vans last year and a pending $1.5bn minority stake in Magna International, a Canadian car parts maker. Basic Element also dabbles in aviation, insurance and construction and is in talks to buy half of Transstroi, Russia’s largest builder.

According to Forbes’ list of the world’s billionaires, Deripaska is the richest man in Russia along with Chelsea Football Club owner and one-time partner Roman Abramovich. Like his London-based friend, Deripaska owns a pile in London’s Belgravia and was said to be interested in buying rival Premier League team Arsenal.

However, Deripaska said he has no interest in moving from Russia, where he maintains a low profile. Indeed, the patriotic former Soviet army sergeant appears to continue serving his country after declaring recently that he regards himself as little more than a caretaker of assets for the state.

This led to concerns that these assets could wind up under control of the Kremlin, as outlined by Magna in a recent shareholder memorandum. Magna also disclosed that Deripaska’s US visa had been revoked because of questions about his business dealings. His rivals allege that he uses strong-arm tactics in hostile takeovers and is not easily dissuaded from backing down.

A one-time metals trader, Deripaska is a winner of the murky aluminium wars of the 1990s. Over the past five years, he has gained control of leading producer Russian Aluminium, which merged with Sual and Glencore last year to create Rusal.

When it conducts its initial public offering of as much as 25% of the group in November, Rusal could raise $7.5bn, making it one of Russia’s largest companies by market value. Yet Deripaska has been absent from investor presentations in London and New York. Rusal is keen instead to wheel out chief executive Alexander Bulygin to meet analysts and the press.

Rusal’s approach underlines how Russian companies looking to tap western capital markets are often keen to talk up their plans but remain reluctant to discuss their corporate histories.

Investors may have some tricky questions for Rusal but the sellside will have no such qualms, judging by the line-up of banks for the impending deal. Morgan Stanley, Deutsche Bank and JP Morgan Cazenove were last month appointed co-arrangers, and Goldman Sachs, Credit Suisse and UBS were mandated as bookrunners.


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