RUSAL drops 9 pct as worries dog Hong Kong debut

* RUSAL shares down 9 pct vs HK$10.80 IPO price

* Debut drop follows slump in Asian markets, flat

* RUSAL's debt, other issues weigh on investors

By Kennix Chim

HONG KONG, Jan 27 (Reuters) - Shares in UC RUSAL  fell heavily on their debut, as a broad market slump across Asia and worries over the Russian aluminium group's debt and legal issues dogged its landmark $2.2 billion Hong Kong IPO.

RUSAL's offering has caught the eye not just for its size but also its importance for Hong Kong's stock exchange, with RUSAL the first non-Asian company to have its primary listing there. And more Russian firms are expected to follow.

Attention was also focused on Oleg Deripaska, RUSAL's biggest shareholder and CEO, who has gone from Russia's richest man to its most indebted oligarch. RUSAL overcame heavier-than-normal scrutiny to be allowed to list in Hong Kong.

Retail investors who usually swarm to Hong Kong listings were excluded from investing in the IPO before it traded because of RUSAL's debts, litigation and other issues surrounding Deripaska.

Deripaska told reporters in Hong Kong that the stock's debut was "reasonable". "You see what's happening in the market around the world," Deripaska said, referring to a broad sell-off.

Clad in a dark suit and tie, and wearing a rose corsage matching the colour of RUSAL's logo, the Russian tycoon smiled for the cameras, raising the traditional glass of champagne to toast the start of RUSAL trade. 

He presented the exchange with a 12-kg aluminium Russian doll.

Hit partly by poor timing on Wednesday as concern about China's tightening monetary policy rippled around Asian markets, the Russian group's shares fell 9 percent to HK$9.84, compared with an IPO price of HK$10.80.

Jackson Wong, an investment manager at Tanrich Securities, said RUSAL's opening day drop was actually not as bad as he had expected, given the company's complexities.

"It's not that bad considering the troubles of the firm. The stock is trying to stabilise, but I don't recommend people buying it. It's too complicated for an average investor, with the lawsuits and the valuations," said Wong who saw some value in buying the stock at HK$9.

Hong Kong's benchmark Hang Seng Index was flat on Wednesday, a sign that factors beyond the recent market selloff could also be behind RUSAL's opening day slide.

Part of the caution facing RUSAL's IPO from the get-go was the baggage the company and its CEO carried. 

U.S. officials have not yet explained why Deripaska had his visa revoked in 2007 and have declined to comment on media reports that the U.S. Federal Bureau of Investigations was probing Deripaska's business interest as part of investigations into money laundering and organised crime.

RUSAL's prospectus addressed these issues, confirming he had been denied a U.S. visa on several occasions. The prospectus said Deripaska, to the best of his knowledge, was not under investigation by any U.S. authority. 

Deripaska also denies claims by a former associate, who has brought a London court case against him related to payment for aluminium assets.

"There are too many questions and too many uncertainties, like the limitations for retail investors and the high debt," said Peter Lai, director at DBS Vickers. "Many investors are holding a wait-and-see attitude."

"None of my clients bought the stock, I advised them not to buy," Lai added.

NOT ALONE

RUSAL, for all its problems, is not alone in seeing a disappointing Hong Kong debut. 

Casino company Sands China’s $2.5 billion Hong Kong IPO in November sputtered on day-one, falling 10 percent, and investors grew fatigued by the year-end in Hong Kong's second-half IPO surge.

The IPO is aimed at helping RUSAL raise cash as part of its more than $14.9 billion debt restructuring and at giving it closer proximity to the Asian market.

RUSAL sold 1.61 billion new IPO shares, or about 10.6 percent of the company, valuing it at around $21 billion.

Its IPO price had it trading at 11.7 times its expected enterprise value to earnings before interest, tax, depreciation and amortization (EV/EBITDA).

By comparison, rival Chalco  trades at 10.2 times forward earnings and Alcoa Inc  is at 7.6 times, banking sources have told Reuters.

RUSAL will also list shares in Paris via Global Depositary Shares (GDSs). The offer price per GDS is US$28.08 or 19.91 euros, with each GDS representing 20 ordinary shares.

Assuming the company exercises the overallotment, it will increase the size of the IPO to $2.56 billion.

BNP Paribas and Credit Suisse are the joint sponsors and global coordinators.

The joint bookrunners of the IPO are BofA-Merrill Lynch, BOC International, Nomura Holdings , Renaissance Capital, Sberbank and VTB Capital, with Rothschild acting as the financial advisor.

(US$1=HK$7.75)

((Additional reporting by Wee Sui Lee and Fion Li in HONG KONG, Written by Michael Flaherty; Editing by Chris Lewis and Valerie Lee))