Guinea steps up threats against buoyant Rusal

The Government of Guinea dealt a blow yesterday to Rusal’s efforts to relieve the burden of its $14.9 billion (?9.25 billion) of debts when it stepped up its legal action against the company and hinted that it could seize the company’s bauxite mining assets in the West African country.

As Oleg Deripaska’s aluminium group looks ahead to its imminent listing on the Hong Kong Stock Exchange, media reports quoted Mahmoud Thiam, the Guinean Minister of Mines, accusing Rusal of not being “truly transparent about all the facts” in the share prospectus.

The dispute, which is included as a “risk factor” in the prospectus, centres on Rusal’s alumina refinery in Guinea. Last year, after a military coup in 2008, the Guinean Government began proceedings to return the refinery to the State and force Rusal to pay $1 billion (?620 million) in compensation. If efforts to settle out of court fail, the asset may be seized. Rusal says in its prospectus that the claim has no merit and that the risk of cash outflow is low.

In an interview with The Times, Artem Volynets, Rusal’s deputy chief executive, described his company as “like a leveraged buyout” that gave investors a significant gearing to the global recovery.

Throughout the long lead-up to Rusal’s listing, the company has emphasised its cost advantages over rivals, arguing, for example, that access to large quantities of otherwise untransportable electricity from hydro-electric sources in Siberia means that Rusal can put aluminium on the docks at Shanghai more cheaply than China’s own Chalco. Listing in Hong Kong was part of the plan to become a household name in China, Mr Volynets said.

Even recent signs that Beijing had started to move towards a tightening of monetary policy were positive, he said: “What you call tightening in China is exponential growth for everyone else. Beijing will not allow the economy to overheat, which is good, because it allows steadier growth.”

Rusal has already successfully raised $2.24 billion from its initial public offering. Just under 40 per cent of the shares going on sale will be divided between four “cornerstone investors”. The quartet comprises the investment group owned by Nathaniel Rothschild; Robert Kuok, the Malaysian billionaire; Paulson & Co, the American hedge fund; and Vnesheconombank, the Russian state-backed investment group, which is already one of Rusal’s most heavily exposed creditors.

“The new [Hong Kong] shares will be a good currency,” Mr Volynets said. “We are a company used to high growth. Over the past three years we have done one large transaction per year. We will always be on the lookout for opportunities.”

His comments may surprise readers of Rusal’s prospectus, which asserted that, under the terms of the group’s debt restructuring agreements, its ability to pursue mergers and acquisition opportunities was limited. The document added, however that management would be screening “attractive bauxite mining and alumina refinery acquisition opportunities that would allow the group to maintain its self-sufficiency in alumina”.

Some have questioned whether the decision to list Rusal’s shares in Hong Kong and ADRs in Paris was a deliberate snub to London by Mr Deripaska, the billionaire oligarch, who is involved in litigation in Britain.

“Hong Kong is emerging as the listing platform of choice for Russian and Kazakh companies,” Mr Volynets said. “It makes sense to go to several places and, as Shanghai opens up, that will be very exciting. No exchange shall be ruled out.”