Rusal Loses Chairman in Surprise Resignation – Deripaska to Blame?

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The resignation of billionaire Rusal chairman Viktor Vekselberg this week underlines the fragility of Russian corporations often run by individuals with egos to match their bank balances.

It is not inconceivable that similar circumstances could not arise in the US, but it is a lot less likely where CEOs and major shareholders are constrained by a more professional corporate culture and main boards with the teeth to reign in egotistical CEOs or Chairmen (let’s not be too complacent, though — Lehman and Enron weren’t that long ago).

Not that we are suggesting Mr. Vekselberg’s decision was due to ego. In his announcement, reported Reuters, he cited problems with major shareholders saying he had disagreed with a number of decisions related to Rusal’s strategic development and modernization of production and human resources policies.

The real beef, though, seems to be the refusal of Oleg Deripaska, chief executive and largest shareholder, to sell a stake he took in fellow Russian mining giant Norilsk Nickel. Deripaska bought some 25 percent of Norilsk just before the financial crisis and saddled Rusal with massive debts — now said to stand at $10.91 billion as of September’s end.

Deripaska hoped to build a globally significant metals group (Rusal is No. 2 only to Alcoa in aluminum, and Norilsk is the largest producer of both nickel and palladium), but was unable to agree to terms with Norilsk’s main shareholder Vladimir Potanin. Potanin is reported in Mineweb to have offered to buy back the shares Rusal owns in Norilisk at a premium to the current price, but Deripaska will not sell, a refusal that appears to be a large part of the chairman’s gripe.

Rusal made a $432 million profit for the three months to the end of September on annual revenues of nearly $11 billion – more or less the same as the firm’s debt. Vekselberg may be genuinely worried about the firm — BOC International said in a research note in January that he’s reported as saying, “Rusal could fail to meet debt covenants in 2012 if the current aluminum price weakness persists. We estimate that for Rusal to avoid breaking debt covenants, the aluminum spot needs to stay above US$2,400/t in 2012.”

Vekselberg is a major shareholder, holding 15.8 percent of Rusal either directly or indirectly; he is also said to be worth some $12.4 billion in his own right, ranked as Russia’s eighth-richest man.

The fate of large swaths of Russia’s corporations is held in the hands of very few individuals who have made their money through political affiliations since the 1990s. What’s surprising is not that such individuals sometimes fail to agree on how to manage the vast corporations they have amassed – so much power and wealth amassed so quickly would probably go to anyone’s head! – but that foreign investors are willing to risk their money buying shares in such enterprises.

Rusal’s shares were suspended after falling 1.3 percent on Tuesday, and they now stand 43 percent below the level at which the company floated in Hong Kong in early 2010, when aluminum averaged some $100 per ton below where it is now.

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