The Windalco Kirkvine bauxite plant in Manchester, as seen in this September 2004 Gleaner photo, is owned by UC Rusal. - File

UC Rusal, the world's largest aluminum producer, has secured an agreement with the Onexim Group, controlled by Russian tycoon, Mikhail Prokhorov, to restructure US$2.8 billion of its outstanding debt, the Financial Times reported on March 22.

Under the arrangement, Onexim will increase its shareholding in RUSAL from 14 per cent to 18.5 per cent in exchange for US$2 billion of the debt, while the remaining US$800 million will be restructured.

As a result of Onexim's increased stake in Rusal, the deal will reduce the majority shareholding of UC Rusal's CEO, Oleg Deripaska, to 53.8 per cent.

The other major shareholders in Rusal are Victor Vekelberg and his partners who own 18 per cent of the shares, and the commodities trader Glencore who holds 9.7 per cent.

Under the terms of the deal, Onexim will be able to sell the 4.5 per cent of UC RUSAL shares back to the mining giant at US$2 billion, Reuters also reported, quoting a source close to the UC Rusal shareholders.

Debt restructure

This may happen if Rusal does not launch an initial public offering of its shares before 2013 or fails to restructure its debt.

The deal appears to value Rusal at around US$36 billion, which many analysts feel is overvalued, as it is not significantly off the approximately US$52 billion valuation which was used for the transaction in the third quarter of 2008 that gave Onexim 14 per cent in privately held Rusal. The acquisition was a condition of the sale of its 25 per cent shareholding in mining company Norilsk Nickel to Rusal.

Earlier in March, Rusal signed a two-month standstill agreement with its foreign creditors, which it owes US$7.4 billion, with the aim of securing a longer term restructuring agreement.

The company owes a further US$7 billion to Russian creditors, including Onexim, all of which - with the exception of Alfa Bank, owned by Mikhail Fridman - agreed to the standstill agreement.

The FT story noted that both Deripaska and Fridman publicly denied that there were any problems between the two of them.

World market

Rusal's creditors will likely have no choice but to restructure the company's debt, analysts predict, because if the Onexim deal is used as a benchmark valuation, the foreign banks would receive around a 17 per cent stake in the company.

And, given the current low price for aluminum on the world market, it would take years for the banks to recover their money.

Aluminum prices are currently trading at around US$1,600 per tonne down from a record high of US$3,380 last July.

Creditors will also be watching closely the actions of the Russian government with regard to its oligarchs.

The Wall Street Journal reported that while the Kremlin had shown willingness to shield Deripaska's assets from foreign creditors, extending it a US$4.5 billion bailout last autumn to repay lenders, First Deputy Prime Minister Igor Shuvalov said March 20 that the state had little appetite for lending more money to over-extended oligarchs. He added that government was open to creditors' requests to swap debt for equity.

The Rusal/Onexim deal comes after this statement was made, and against the background of a further call last week by Russian president, Dmitry Medvedev for businessmen to step back from "corporate egoism" in seeking repayment of loans that would risk toppling "entire companies with many thousands of staff."

The Russian government's loan to Rusal expires in October.

renee.shirley@yahoo.com