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Article Excerpt
IN BRIEF
Editor's Choice
*** Alfa Group head Mikhail Fridman and billionaire Oleg Deripaska, whose companies have been sued for debts by Alfa Bank, issued a statement this week saying there was no conflict between them and that they could resolve all differences after Fridman met with President Dmitry Medvedev, who earlier criticized banks that aggressively pursue companies struggling to restructure debts. Deripaska and Fridman said personal friendships would prevent them from being at loggerheads, but separate comments by the two men indicate that the negotiators do differ on the solution to the debt problem - Deripaska's Basic Element owes Alfa a figure in the region of $650 million, a significant amount of which is past-due debt.
Deripaska's aluminum giant RUSAL has put up industrial assets, real estate and shares as collateral with Alfa, and has said it will offer more if we acceptable parameters for restructuring can be found, but said it has no plans for a large-scale 'fire' sale". It has also pledged 25% stakes in a number of its aluminum smelters, along with its blocking stake in MMC Norilsk Nickel, to state-owned Vnesheconombank (VEB) under the terms of a $4.5 billion bailout loan. RUSAL said that it is negotiating the long-term restructuring of its debt and is not asking the government for help.
Meanwhile, creditors and suppliers are continuing to besiege other parts of Deripaska's business empire, whose companies have run into financial troubles amid the global economic crisis. The skies are growing darker as the term bankruptcy is being mentioned more often in conjunction with the already familiar phrase of frozen accounts. Automaker GAZ, part of BasEl, could go bust, Vladimir Lisin, the billionaire chairman and principal owner of Novolipetsk Steel saying NLMK might initiate bankruptcy proceedings. Other steel majors such as Severstal and MMK also have pressing claims against the automotive group.
*** Russian steel major Severstal this week announced it has pulled out of a consortium formed to bid for the huge Tavan-Tolgoi coal deposit in Mongolia, saying that given the new economic environment it believes it is better to focus on existing projects and boost the efficiency of existing assets. Severstal was set to bid as part of a consortium including Viktor Vekselberg's Renova and Oleg Deripaska's En+ and reports suggest they plan to press on with the bid. Russian Railways is also interested in the deposit and is expected to submit proposals on the formation of a joint venture to mine it to the Russian government soon. The deposit is estimated to contain 6 billion tonnes of coal - 40% of it coking coal, but development of the field could be put back while Mongolia debates natural resource legislation.
*** The world's largest steelmaker ArcelorMittal said this week it is planning to form a new company, North Kuzbass Coal Company, to run its Kuznetsk basin coal producing assets, but that energy coal producing Anzherskoye could be left out. Unlike most energy coal mines, which are open pit, Anzherskoye is a deep mine and its coal is currently selling at a loss. It is also the only one of the concern's three Kuzbass assets which sells to outside buyers. Earlier reports quoted local mining unions as saying that ArcelorMittal was thinking of mothballing Anzherskoye, but it now looks as if it will stop at making large-scale staff lay-offs.
*** Alrosa this week signed a memorandum with the Leader Management Company which will lead to the creation of a market for investment diamonds in Russia. Russia's diamond monopoly and Leader will now work together to put the infrastructure in place to trade high-end cut diamonds as a marketable commodity, saying they see a market worth up to $500 million emerging in the short term. A special investment club will draft the principles and regulations for trading cut diamonds as an investment tool and specialized stock market tools may also be instituted. They include the opportunity to buy shares in mutual funds backed by investment-graded diamonds. Alrosa is currently only selling to the Gokhran, with the diamond market practically at a standstill.
*** Russia's third biggest bank Gazprombank announced this week that it will buy 3.17 tonnes of gold for 3.3 billion rubles from Chelyabinsk-based miner Yuzhuralzoloto by the end of 2009 in a deal is worth a total of 3.268 billion rubles. Gazprombank is seen buying the gold because the Central Bank is planning to lend to banks using gold as collateral and other market players might soon follow its lead as gold's stock is seen as a safer haven than foreign currency.
TOP STORY
Deripaska, Fridman not in dispute, working on BasEl debt restructuring
MOSCOW. (Interfax) - Alfa Group head Mikhail Fridman and billionaire Oleg Deripaska, whose companies have been sued for debts by Alfa Bank, issued a statement on March 17 saying there was no conflict between them and that they could resolve all differences after Fridman met with President Dmitry Medvedev, who a day earlier criticized the "corporate selfishness" of banks that aggressively pursue companies struggling to restructure debts. Deripaska and Fridman said personal friendships would prevent them from being at loggerheads, but separate comments by the two men indicate that the negotiators do differ on the solution to the debt problem - Deripaska's Basic Element owes Alfa a figure in the region of $650 million, a significant amount of which is past-due debt.
Deripaska's aluminum giant RUSAL has put up industrial assets, real estate and shares as collateral with Alfa, and has said it will offer more if we acceptable parameters for restructuring can be found, but said it has no plans for a large-scale 'fire' sale". It has also pledged 25% stakes in a number of its aluminum smelters, along with its blocking stake in MMC Norilsk Nickel, to state-owned Vnesheconombank (VEB) under the terms of a $4.5 billion bailout loan. RUSAL said that it is negotiating the long-term restructuring of its debt and is not asking the government for help.
Meanwhile, creditors and suppliers are continuing to besiege other parts of Deripaska's business empire, whose companies have run into financial troubles amid the global economic crisis. The skies are growing darker as the term bankruptcy is being mentioned more often in conjunction with the already familiar phrase of frozen accounts. Automaker GAZ, part of BasEl, could go bust, Vladimir Lisin, the billionaire chairman and principal owner of Novolipetsk Steel saying NLMK might initiate bankruptcy proceedings. Other steel majors such as Severstal and MMK also have pressing claims against the automotive group.
Deripaska, Fridman not in dispute
Deripaska's Basic Element (BasEl) holding owes Alfa-Bank approximately $650 million, and half of that is past-due credit. Alfa-Bank has so far adopted the most unyielding stance among BasEl's Russian creditors: the country's biggest privately owned bank is chasing nearly all of BasEl's major companies through the courts, and is asking them to freeze accounts as well as recover debt, prompting speculation that Fridman and Deripaska are locked in dispute.
But the two deny this, furthermore they claim personal friendship prevents them from being at loggerheads.
"Companies from the Basic Element group and Alfa-Bank have a long history of fruitful cooperation. Many of the BasEl group's firms are clients of the bank, and have taken advantage of its loans and other financial products. The situation that has arisen due to the global financial crisis has incurred delays with servicing debt among many major companies in Russia and the world in general. Management at BasEl and Alfa-Bank are searching for the optimal solution to the situation with the settlement of credit liabilities, and they support constructive, working relations. Both parties are aware that, in addition to mutual economic interests, the interests of employees of the enterprises concerned, and of the bank's clients and account holders and regions in which the companies are present are of paramount importance," the joint statement reads.
"Previous success in our business relations makes us confident that solutions that suit both parties will be found. The fact that we as shareholders are bound by personal friendship is also important. Thus, reports of a conflict between us or our businesses do not have and cannot have any foundation, and are inaccurate," they said.
But separate comments by Deripaska and Fridman indicate that the negotiators do differ on the solution to the debt problem.
"Expressing my own position and the intentions of management of the Basic Element group's companies I want to confirm that by no means are we backing out of the commitments we assumed before all creditors and, that we intend to honor those commitments in full. We consider that the unprecedented crisis situation that has arisen in the global economy entitles is to treat this as a significant change in circumstances and to expect changes to the terms of signed agreements and understanding on the part of creditors and partners. The best outcome is for the situation that has emerged to be resolved through dialog," Deripaska said.
Mikhail Fridman, for his part, said his bank was prepared "in the period of economic crisis to support our partners" and to be "open, constructive and flexible in the search for mutually acceptable solutions, particularly with such an esteemed company as Basic Element." But he also said "the only thing that we cannot afford to risk is the safety of our clients' deposits and the stable functioning of what is one of Russia's backbone banks."
Basic Element's Corporate Finance Director Andrey Yashchenko told journalists that "media accounts of the consolidated debt of Basic Element to Alfa-Bank are mistaken and the figures incorrect. Companies controlled by Basic Element, including Russian Aluminium, have obligations to the bank of around $650 million, half of which are problematic loans, or debt with overdue payments. These obligations are equally divided among all the companies involved and are not guaranteed by the group overall. The principal of the loans is due for repayment this year".
"We believe that the global economic crisis can be considered a significant change of circumstances that allows us to count upon amending existing agreements. We hope that our creditors will view our position with understanding and good faith. We will, of course, carry out our obligations in full; the only issue is in regards to timing.
"We will not back away from our liabilities and continue discussions with all creditors on the restructuring of our obligations," he said. "The restructuring of debts is a relatively standard procedure in developed markets. Many Western companies have gone through restructuring time and time again because there is a clear and transparent process facilitated by specialists who frequently handle such situations. Unfortunately, no such practice exists in Russia, and that makes the whole process much harder for us".
"Despite unhelpful rumours and speculation in the media, talks with Alfa-Bank continue with the goal of reaching an agreement that will enable us to maintain business and jobs. It is in the best interests of all to resolve this as soon as possible. We look for a constructive approach from Alfa-Bank, but the freezing of accounts has a negative impact on the lenders' activities," Yashchenko said.
"The bank has a wide range of our assets as collateral, including industrial assets, real estate and shares. We are ready to provide assets as collateral if we can agree on acceptable parameters for restructuring. Under such circumstances, we would consider providing any asset as collateral and consider other repayment options, including the divestment of assets, but we cannot give a 50% discount to the liquidation price - that is unacceptable. We are not prepared to do a large scale 'fire' sale, but we are ready to discuss mutually acceptable solutions, he said".
"For companies with ruble-denominated sales revenues, we would naturally like to get the debt transferred from dollars to roubles. But all of this is part of a single restructuring process and such decisions are not made on a separate basis, only in the framework of general agreements," he said.
Government aid not being sought
RUSAL said it is negotiating the long-term restructuring of its debt and is not asking the government for help.
First Deputy Prime Minister Igor Shuvalov said in an interview with Bloomberg on March 18 that the government did not intend to restructure the aluminum giant's debt to state banks by becoming a shareholder.
"When we're asked if we're ready to help RUSAL by becoming a shareholder, we are as of today not prepared to do so," Shuvalov told the agency. "There is an anti-crisis provision allowing us in extreme cases to buy shares to provide stability and help cover debt," he said. "But we are not considering such an option with RUSAL," the agency quoted him as saying.
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