All Set For Hong Kong Rusal Listing
Wednesday, January 13, 2010

Russian aluminum producer Rusal, which controls 11% of world ouput, has begun its investor road-show prior to its controversial listing in Hong Kong; pricing of the shares is due on January 22, with trading slated to begin on January 27.

The firm is offering 10% of its capital and will raise approximately USD2.6bn at a price per share of between HKD9.10 and HKD12.50. Rusal is controlled by billionaire Oleg Deripaska, who will retain 47.59% of the company after the IPO.

What has made the IPO contentious is Rusal's very high debt of USD14.9bn, which Deripaska has been struggling to restructure during the last 12 months, meanwhile dogged by accusations of links to organized crime, which have now been laid to rest. Deripaska says that the restructuring is now complete, and the Hong Kong Stock Exchange gave approval for the issue only after several rounds of talks with the company. The enormous prospectus is littered with warnings, including one in red on the cover, and the Exchange has limited the offer to professional investors, setting a high HKD1m barrier to investments.

It has been supposed that London and New York would not have Rusal's IPO; but the truth is more likely to be that the Hong Kong market is on a high, having easily outplayed its rivals last year in the IPO stakes. "The reason for us being in Hong Kong is primarily strategic," said the company. "They're strategic because China is central to our future growth, because being here will help us to become hopefully a household name for the main Chinese customers and be an Asia company first and foremost. Eighty per cent of our major and most competitive cost capacity is in Asia and our major growth is in China.”

More than half of the IPO has already been placed, with strategic investors including Russian state bank Vnesheconombank (VEB), New York hedge funds NR Investments and Paulson & Co, and tycoons Nathaniel Rothschild and Robert Kuok. Chinese sovereign wealth fund China Investment Corp is said to be considering a USD300m stake in the Russian firm.

"The group intends to use all of the net proceeds received from the global offering immediately to reduce outstanding debt and satisfy other obligations to its creditors," Rusal said in a statement.

Bloomberg calculates that the mid-range offer price would value Rusal at 16% less than its main Chinese competitor, Aluminum Corp of China Ltd. The IPO will value Rusal at 18 times 2010 forecast earnings, while Alcoa currently trades on a multiple of 9.3. But the figures don't mean much, since Rusal lost almost a billion dollars in 2009, largely due to the collapse in aluminum prices.

Managers of the IPO include BNP and Credit Suisse, leading Bank of America Merrill Lynch, BOC International Holdings Ltd, Nomura Holdings Inc, Renaissance Capital Ltd, OAO Sberbank and VTB Capital SA.

At an investor briefing before the road-show began, Artem Volynets, Rusal's deputy chief executive, said: “When I was in business school I learnt that high gearing is good.”

That's OK, then.