When Oleg Deripaska’s UC Rusal finally priced its initial public offering this week, the aluminium company completed a rollercoaster run that had seen it come back from the brink of insolvency a year ago to catch a wave of investors betting on global recovery.
Rusal priced the sale of a 10.8 per cent stake on the Hong stock exchange – the first listing there by a Russian company – in the middle of its indicative range at HK$10.80, after global jitters started to dent demand. The deal values the company at $21.5bn.
“This is a good IPO for them,” said one person close to the process. After a bull market of nearly 10 months “the IPO is priced at the top for the short term ... They had to price the IPO the day the president of the US decided to hammer the banks. But in the mid-term it will do well”.
The Rusal IPO has been fraught with difficulty from the start as it sought approval from the HKSE even as it entered the final stretch of complex talks on restructuring $16.8bn in debts with more than 70 creditors.
It also faced questions from the HKSE’s board about a controversial court case in London over a disputed stake in the company. Rusal is not a party to the claim.
The HKSE’s deliberations led to delays for the IPO, which the company had hoped to complete by the end of last year. But in the end, the delays helped the company catch a wave of investor enthusiasm in the New Year, which had sent Chalco, its Chinese peer, soaring more than 20 per cent in the first week of January.
“The company really benefited from the rally that started up at the beginning of the year,” said one of the people.
“It made the price range look good so we were able to get a lot of early momentum. ”
But the US administration’s broadside against the banking system could weigh on the stock when it starts trading on January 27.
“If the market goes down 10 per cent, the IPO will go down 10 per cent when it starts trading,” one person close to the offering said. “But if investors keep hold of it for three years then they should make a return of 50 to 60 per cent.”
The Rusal IPO is ultimately a bet on global recovery, analysts and bankers said.
“The company is coming out of very bad period,” says another insider.
“Before the crisis it was a company that was making more than $4.5bn in (earnings before interest, tax, depreciation and amortisation). This year it is projected to make $2.6bn in ebitda. This is typical recovery story as long as the world keeps growing. But if it goes back to recession then aluminium will suffer more than others.”
The company warned in its share prospectus that a “sustained fall” of more than 20 per cent in the aluminium price “could adversely affect the company’s ability to meet certain targets and financial covenants under its debt restructuring agreements.
Some analysts and bankers have criticised the offering as only a “quasi-IPO” as at least 40 per cent of the share issue was pre-booked by a slate of cornerstone investors led by Russian state bank VEB.
But people close to the process on Friday insisted that the IPO had garnered a broad base of investor support with more than 300 investors from Asia, Europe and the US participating.
Even with the cornerstone investors, there is at least $1bn worth of liquid stock, they said.
Credit Suisse and BNP Paribas led Rusal’s offering, while Rothschilds investment bank acted as financial advisor.
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