RUSAL aims to refinance $11.7 billion debt in 2011

MOSCOW  （December 27, 2010） : RUSAL, the world's largest producer of aluminium, aims to refinance $11.7 billion in debt next year, starting a fresh chapter in the company's hard-fought restructuring, its head of capital markets said.

After nearly a year of arduous negotiations with a club of 70-odd foreign creditors, RUSAL restructured around $17 billion in total debt after the global credit crisis pushed it to the brink of disaster.

It was Russia's most heavily leveraged non-state company at the time. "We have a real chance to move ahead and refinance the restructured debt in future," head of capital markets Oleg Mukhamedshin told Reuters in an interview on December 23.

"We want to refinance the entire restructured debt. We have it in our plan for next year." The company announced a landmark trade finance deal for a $300 million credit line, its first deal on global debt markets since the restructuring.

Mukhamedshin declined to name the rate it would pay on the credit line but said it was lower than the 4.5 percent over Libor currently paid on the $5 billion still covered by the override agreement with foreign creditors.

The remainder of the $11.7 billion is owed to Russian banks.

"RUSAL's credit quality has improved by an order of magnitude and banks are lining up to provide trade financing, which is a sign that banks are ready to give RUSAL new credit lines at a rate far below the one in the override," he said. A RUSAL board committee was considering an offer from Norilsk Nickel to buy out the aluminium producer's 25 percent stake in the Arctic miner. Mukhamedshin declined to comment on the offer.

RUSAL's share price soared after the news of the offer, which would give the company more than enough cash to cover the remaining debt.

RUSAL co-owner Mikhail Prokhorov, who sold the stake to the aluminium giant, named a range of $12 billion-$15 billion for it in an interview with Reuters, also published on December 23. Mukhamedshin said that refinancing the debt in full was the best option under the terms of the restructuring at a time when interest rates were at a low ebb.

"The override agreement, about $5 billion, can't be paid off in part. It can only in be paid off in full, so we are looking to refinance." Another Russian metals company to complete tough restructuring talks last year, steelmaker Evraz Group, refinanced $950 million at a variable interest rate based on debt levels, which stood at 2.8 over Libor percent when it was announced in late November.

Among its plans for new borrowing, Mukhamedshin said RUSAL would follow in the footsteps of Russian state bank VTB, the country's second-largest lender, and place a bond in Chinese yuan.

"We think for a pilot issue up to 1 billion yuan （$150.6 million） is enough. It is a test case. That market is important and it is important to have a credit history on it and we will have a place to spend our yuan income," Mukhamedshin said.

"We are developing our business in China, selling our aluminium, and we buy large volumes of raw materials in China." Among other planned borrowings, RUSAL, which accounted for about 10 percent of the world's primary aluminium production in 2009, will seek $400 million in project finance to complete the first stage of a $2 billion smelter in the Siberian town of Taishet.

The project was frozen after the financial crisis of 2008.

"We are negotiating with several Russian and Western banks who are interested, and there is an understanding on the terms of potential lending," he said. "But since it was frozen for two years, we are finalising new estimates on the finances and engineering. In the first quarter of next year we will hand the information to the banks and in the second quarter we can realistically close the deal."