Oleg Deripaska Plans to Relinquish Control of Rusal, En+ Group

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The British TV drama “McMafia” may not have reached U.S. shores yet, but viewers in the U.K. have been absorbed in the machinations of a fictional Russian family — with the ironic name of the Godmans — whose mafia past in Moscow catches up with them in their new lives in London.

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All things Russian, and particularly the activities of the richest among them, have therefore taken on a disproportionate interest in the British psyche of late, which may explain the plethora of articles across the British media this week on Russian tycoon Oleg Deripaska, the head of power and aluminium companies En+ Group and Rusal, and his unexpected plans to step down as CEO of the companies he formed.

You might be asking: since when does an oligarch voluntarily relinquish control of his empire? Well, possibly – rather like Vladimir Putin stepping aside in 2008 for his friend and colleague Dmitry Medvedev to take over as president – when you do not really relinquish control at all.

Moving Focus Elsewhere?

The most official reason for Deripaska stepping down – there is no official reason given yet but plenty of approved sources are giving their version – is to focus on running his automobile business Gorkovsky Automobile Plant (GAZ), according to the Financial Times.

Derispaska’s interest in Nizhny Novgorod-based GAZ should come as no surprise.

The business is centered in the area he was born and brought up, but quite why he feels the need to focus all his time and effort on a group of businesses he has owned since the turn of the century is not immediately apparent.

Talk last year of a tie-up with Volkswagen has not yet come to anything, but a foreign partner could transform the prospects for the business, which lacks Western technology and R&D on the scale of a global automotive maker like Volkswagen.

Deripaska, Abramovich and Potanin

Another less plausible explanation is Rusal has just announced legal proceedings against fellow oligarch Roman Abramovich in an attempt to prevent him from selling his 6% stake in Vladimir Potanin’s Norilsk Nickel.

Abramovich took the stake in 2012, reportedly at the behest of Moscow, to end a feud between Derispaska and Potanin for control of the company. Potanin currently owns 30.4% of Norilsk through Interros, his holding company, while Rusal owns 27.8%, the Financial Times reports.

One theory is Potanin may wish to increase his control of the company in order to reduce its dividend payouts and divert more cash to internal investments – for which he needs greater control. Norilsk dividends are a big source of income for Rusal and over the years have proved a buffer against a fall in commodity prices — a form of support Derispaska may be keen not to lose.

The agreement for Abramovich to hold 6% expired in December and legally leaves him free to sell to — yes, you guessed it — to a company owned by Potanin. The price is said to be $234/share, an 11% premium to the undisturbed price, but at a similar value to what he paid for them (plus dividends over the intervening five years).

Quite why Derispaska would hand over the upcoming legal challenge to his new CEO at Rusal, Vladislav Solovyov, is hard to see. He is not one to walk away from a fight and this one could be every bit as drawn out as the post-financial crisis, four-year tussle that was only resolved by Abramovich stepping in before.

Not Yet Imposed, Threat of Sanctions Still Looms

The final theory is Derispaska is trying to clear the way for En+ to list in the U.S. or London.

A Times article says En+ recently pitched to U.S. and international banks for a $1 billion share sale and Deripaska’s role may have been viewed as an impediment to their participation in any transaction or fundraising following his appearance on a list of some 200 Russian government and business figures. The U.S. Treasury and the State Department were mandated by the Countering America’s Adversaries Through Sanctions Act of 2017 to produce the list which passed in Congress last July, but no action to impose sanctions as a result has yet been taken.

That, however, does not mean that they may not in the future; by distancing himself, Derispaska may be hoping to protect En+ and Rusal from association. Even the presence of the list makes some Western banks wary of what deals they get into with named parties.

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In the meantime, Derispaska and Potanin’s proxies will fight out the proposed share sale in British courts. (Interesting how Russian oligarchs turn to the British legal system rather than rely on courts at home — what does that tell you?)

Probably much the same motivation as the Godmans’ fictional exile in London — Russia is a great place to make money, but a hard one to keep it.

Comment (1)

  1. Jeff Yoders says:

    Stuart, McMafia made it here at last! Been loving the new episodes. Great analysis of Oleg’s moves.

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