Rusal in Talks to Supply Aluminum to Banks for Funds (Update1)

April 21 （Bloomberg） -- United Co. Rusal, the world's largest aluminum producer, said it's in talks to supply metal to banks for possible exchange-traded funds that would be backed by the commodity.

“We're interested in supporting new channels of demand for the metal,” Oleg Mukhamedshin, Rusal's deputy chief executive officer and head of capital markets, said in an interview today.

Investors buy shares of exchange-traded funds as a way to gain from price increases in the underlying commodity. At least three aluminum ETFs are “technically” ready to be offered to shareholders, Rusal CEO Oleg Deripaska told reporters in Moscow. Banks planning aluminum ETFs still need to negotiate supplies from aluminum producers, Deripaska said.

The appearance of aluminum ETFs on a “significant scale” won't happen until the fourth quarter because of supply constraints, Deripaska said. Rio Tinto Group, Alcoa Inc. and other producers may get involved, he said.

Aluminum prices rose 67 percent in the past 12 months even as inventories climbed to their highest in at least 32 years.

Rusal may supply metal to more than one ETF, depending on the price it's offered, said Mukhamedshin, who was also speaking in Moscow. The volume of metal the Russian company can sell this year is limited because its order book is “almost fully contracted out” for 2010, he said. Rusal has “some flexibility” with sales in the fourth quarter, he said.

Depositary Receipts

Rusal is in talks with three Russian investment banks about listing depositary receipts in Moscow, Mukhamedshin said. That's likely to take place this year, he said.

Rusal became Russia's first company to list in Hong Kong this January, raising $2.24 billion from a share sale to help pay debt. The company owns a 25 percent of OAO GMK Norilsk Nickel, Russia's biggest miner. Rusal doesn't plan to seek a merger with Norilsk or boost its stake in the near future, Deripaska said.

“We look to deleverage Rusal before any further move” concerning Norilsk, he said.

Rusal has to repay $3.3 billion to more than 70 creditors by the end of 2013. It's “most likely” to make further repayments of debt this year as the company's cash flow is “very strong,” Mukhamedshin said.

“We feel comfortable with the current aluminum prices,” Deripaska said. “They are $300 a ton higher than in our accord with the creditors.”

The company has applied to global credit agencies for a rating so that it can sell bonds, Mukhamedshin said.

Rusal is in “advanced talks” with Russian state development bank Vnesheconombank for financing to complete construction of the Boguchansk power plant and aluminum smelter in Siberia, Mukhamedshin said.

--With assistance from Anna Stablum in London. Editors: Simon Casey, Tony Barrett