|
Article Excerpt
IN BRIEF
Editor's Choice
*** Russia's international reserves have seen a record decline. During the period October 17-24 the reserves fell by $31 billion or 6% to $484.7 billion, which represents the largest one-week decline in the post-Soviet era. The previous record of $16.7 billion had been set just a few weeks ago. For the first seven months of the year the reserves had been rising steadily, reaching a peak of $597.5 billion on August 8. The reserves have declined in eight of the eleven weeks since then, shedding $112.8 billion in total, including $76.1 billion in the four weeks of September. All of this is in stark contrast of course to the preceding four years, when the reserves grew phenomenally, almost $400 billion between 2004 and 2007 inclusive.
*** Oleg Deripaska's aluminum giant United Company RUSAL (UC RUSAL) announced this week it will refinance a $4.5 billion loan it received from Western banks in spring 2008 with a loan it is raising from VEB, the Russian development bank. The money, originally taken out in order to finance the acquisition of a blocking stake in MMC Norilsk Nickel, forms part of a government allocation of $50 billion to VEB so that it can help Russian companies and banks pay off their foreign debt during the global credit crunch and keep the assets they used as collateral.
*** The board of directors of Norilsk Nickel on October 24 considered a motion by board director and UC RUSAL shareholder Mikhail Prokhorov to cancel a $2 billion share buyback that the mining giant announced on August 22. Sources close to the board said it decided not to cancel the buyback, with only three directors representing RUSAL, which holds a blocking stake in Norilsk Nickel, voting in favor of Prokhorov's proposal, while the remainder, including independent directors, voting against. Later, an arbitration court in Krasnoyarsk territory issued an injunction against the buyback in a suit brought by RUSAL. Analysts said shareholders would be disappointed by the coefficient of the buyback.
*** Russian First Deputy Prime Minister Igor Shuvalov this week chaired a conference dealing with support for the Russian ferrous metallurgy sector. Measures to support demand for metal products, the refinancing of the companies' debts, and coordination between natural monopolies' investment plans and relevant programs in the ferrous metallurgy sector were discussed. Prior to the meeting one company said that the metal producers would ask for increasing government investments in infrastructural projects and regional development. In addition, the conference was to address the improvement of the tax policy, particularly as regards VAT refund for exports.
*** Severstal has been able to lower the prices of the PBS Coals acquisition by $300 million. In order to complete the acquisition of PBS Coals Limited, Severstal will now pay 747 million Canadian dollars ($595 million), which is around one third less than the amount was initially expected to be when the transaction was announced in August, Severstal said in a statement. Both parities agree to a lower the price paid on the shares in the company by 383 million Canadian dollars ($300 million), the statement said. It was earlier reported that Severstal-Resurs, based on an offer price of 8.3 Canadian dollars per share ($7.95), put the total acquisition price at 1.13 billion Canadian dollars.
*** TMK, one of the world's biggest pipe producers, has begun shipments of line pipe to the China National Petroleum Corporation (CNPC). Under the terms of an agreement between TMK and CNPC, more than 5,000 tonnes of line pipe was shipped in September 2008. Shipments consisted of 406-millimeter OD line pipe with wall thickness of 12.5, 14.2 and 16 millimeters. In 2009, TMK expects to increase shipments of oil and gas pipes to be used at CNPC's Longgang's development and production stages, the statement said. The Longgang project involves developing 13 wells, building three gas gathering stations, and laying more than 300 kilometers of pipeline.
*** Rosnedra has revealed that budget revenues from tenders and auction on resource section in 2008 could well top 100 billion rubles. In the first nine months of 2008, the Russian Federal Budget received 68 billion rubles, of which 12 billion rubles came from auctions and tenders on liquid hydrocarbons. The remainder was generated by auctions and tenders on solid mineral sources. Rosnedra is still awaiting the funds for the Udokan field, which come to around 15 billion rubles.
*** The current financial crisis hit Ukraine hard this week, particularly the country's steel market, leading to ministers calling for production cuts to stabilize demand as falling prices rock the country's economy. Production at blast furnaces and several Ukrainian steel plants has been either cutback or stopped completely and producers have been downgraded by leading ratings agencies. Kyiv also suggested introducing price declarations in the mining and metals complex in order to cope with the crisis.
TOP STORIES
Intl reserves see record decline in latest week
MOSCOW. (Interfax) - Russia's international reserves declined by $31.0 billion or 6.0% to $484.7 billion in the week of October 17-24, the largest one-week decline in the post-Soviet era.
The previous record decline, $16.7 billion, was set just a few weeks ago, in the week of September 26-October 3.
The size of the fluctuations in the international reserves for entire years, up to 2003, were smaller than last week's decline, according to Central Bank data.
The reserves increased by a net total of $2.5 billion in 1997, declined by $5.6 billion in 1998, rose by $0.2 billion in 1999, by $15.5 in 2000, by $8.7 billion in 2001, by $11.2 billion in 2002 and by $29.1 billion in 2003.
Thus the size of decline in the latest week exceeds the size of the total increase in 1999-2001 ($24.4 billion), although it is somewhat less than the size of the increase in 1999-2002 ($35.6 billion).
Since 2004, of course, the reserves have grown phenomenally: by $47.6 billion in 2004, $57.7 billion in 2005, $121.5 billion in 2006 and $172.7 billion in 2007, the one-year record.
In 2008 the reserves rose steadily for the first seven months, peaking at $597.5 billion on August 8, 2008.
The reserves declined in eight of the 11 weeks since then. They have shed a total of $112.8 billion, including $76.1 billion in the four weeks of September.
Given that the reserves increased by $119.6 billion in the year to August 8, their growth in the year to October 24 is just $6.8 billion.
The Central Bank has lowered its forecast for the increase in international reserves in 2008 to $70.9 billion from $156.4 billion previously in its "Main directions of fiscal policy in 2009-2011" submitted to the State Duma. The revised forecast assumes oil prices averaging $101.5 per barrel for the year, down from $112 per barrel previously.
In 2009 the Central Bank forecasts international reserves to decline by $4 billion with oil at $66 per barrel, and to increase by $58.9 with oil at $90 per barrel, by $69.5 billion with oil at $95 and by $120.6 billion with oil at $115.
The international reserves consist of highly liquid financial assets at the disposal of the CB and Russian government, including foreign currency, monetary gold, special drawing rights, the reserve position at the IMF and other reserve assets.
The Central Bank started using the market quotations of the debt bonds of foreign issuers in its reserves in 2008 to bring the international reserves calculation system into line with global practices. In the past, the calculations were based on the amortized value of these instruments, that is, the cost of their acquisition and the interest income accrued on them.
TOP STORIES
Norilsk Nickel buyback: a feast in time of plague or demonstration ofAaconfidence?
MOSCOW. (Interfax) - The board of directors of Norilsk Nickel on October 24 considered a motion by board director and UC Rusal shareholder Mikhail Prokhorov to cancel a $2 billion share buyback that the mining giant announced on August 22.
Sources close to the board said it decided not to cancel the buyback, with only three directors representing Rusal, which holds a blocking stake in Norilsk Nickel, voting in favour of Prokhorov's proposal, while the remainder, including independent directors, voting against.
Officials at Norilsk Nickel are not commenting on the board meeting.
By any means
The market has already stopped trying to find a logical explanation for Norilsk Nickel's actions after a shareholder dispute within the company, this time between Vladimir Potanin's Interros and Oleg Deripaska's Rusal, erupted with new fury.
In the past few months, Interros has initiated several decisions that have clearly aggravated Norilsk minority shareholder Rusal. Norilsk Nickel's board first approved the $2 billion buyback, and later three Norilsk Nickel subsidiaries - Norilsk Plant, Kola MMC and OGK-3 - decided to spend a total of 42.65 billion rubles (nearly another $2 billion) to buy 16.5 million shares (8.7%) in the company, a decision that did not require board approval. In the middle of October, it was announced that Norilsk Nickel subsidiary OGK-3 would buy 25% of Rusia Petroleum and 35% of Plug Power for $600 million.
After the announcement of each of these deals, Rusal raised concerns about corporate governance. Interros, naturally, denies all accusations.
Meanwhile, the Krasnoyarsk Territorial Arbitration Court on October 28 issued a ruling forbidding MMC Norilsk Nickel from carrying out any actions to buy back its shares as part of an injunction on a lawsuit filed by RUSAL.
UC RUSAL had asked the court to invalidate a decision made by the Norilsk Nickel board of directors on August 22 regarding the procedure for buying back the company's shares.
A copy of the court's ruling, which Interfax has obtained, was sent to Norilsk Nickel and the National Registration Company.
The ruling forbids Norilsk Nickel from "concluding purchase-sale agreements for shares with owners, beneficial owners and nominal holders of Norilsk Nickel stock or other entities; transferring cash to pay for Norilsk shares on purchase-sale agreements; or carry out other actions related to the acquisition of the company's own shares on the basis of the board of directors' decision from August 22, 2008," the court said. The ruling took effect immediately.
Norilsk Nickel declined to comment on the ruling.
For and against
The decision on the share buyback was made by a board dominated by Interros thanks to the decisive vote of Vladimir Potanin as chairman and, Rusal claims, the loyalty of independent directors. At the time of the decision, Norilsk Nickel's share price was about $200, but it has since fallen nearly 75%. The price for the buyback was set at $233 per share.
Norilsk Nickel representatives said the buyback was needed to support the company's stock price.
Rusal initially opposed the buyback and proposed that the money be used to pay dividends instead. Prokhorov said earlier this month that now was not the time to spend $2 billion to buy back shares given the turmoil on global financial markets, the slide of the company's share price from $300 to $60 and the downturn on commodities markets. The buyback could increase Norilsk's debt, putting the company on the verge of bankruptcy, he said.
Analysts at bank Uralsib speculated that the "true goal of the buyback was to avoid dividend payments and thus exacerbate the already difficult position of Rusal, whose total debt was quite high ($14 billion) and which needed Norilsk Nickel's cash flow."
IFK Metropol analyst Maxim Khudalov also said that in the current market climate a buyback "is not very appropriate, as most of the metals mined by the company have fallen significantly in price."
"Considering the negative expectations for future economic growth both in developed and developing countries, one can expect a deterioration of the company's financial results in 2009," he said.
Khudalov also reckons the buyback, as well as the purchase of nearly another $2 billion of shares in the parent company by Norilsk Nickel subsidiaries, "will seriously reduce the mining company's cash flow."
He said the purchase of 8.7% of Norilsk shares by subsidiaries might not go ahead, but there was little chance of Norilsk cancelling its buyback.
A well-placed source said independent consultants hired by Norilsk Nickel think that cancelling the buyback could have legal risks for the company.
Bank of Moscow senior analyst Yury Volov said a buyback "is a normal way to support share prices and demonstrate to investors management's confidence in the company's prospects."
"But in this case there is clearly too big a difference between today's market price of the shares and the price of the buyback, which is not very fair to shareholders who, for one reason or another, do not want to sell their shares," Volov said.
He said Norilsk Nickel could spend the extra cash to buy up a larger number of its shares, or other assets in the sector.
However, Volov said the buyback does not present any particularly risks for Norilsk Nickel as "the company has quite a good cash cushion and fairly moderate debt."
Analysts at Uralsib agree. At the end of the first half, Norilsk Nickel's cash position was $4.9 billion, and its short-term debt was $1.3 billion.
Uralsib said in a report that after all the proposed deals - the buyback, the purchase of another 8.7% of shares by subsidiaries, and OGK-3's purchase of the Rusia Petroleum stake and Plug Power, resulting in a cash outflow of $4.3 billion, Norilsk's financial position will remain strong.
However, Norilsk is already thinking about cutting costs in light of the global financial crisis. A company working group met Monday to consider plans to optimize non-production expenditures.
Last week chief executive Vladimir Strzhalkovsky signed a directive ordering all managers to begin preparing such programs. Earlier, Norilsk's finance and economics chief Oleg Lobanov said the company is also planning to revise its investment program.
He said the priorities for Norilsk are projects to develop its mining base, as well as the Talnakh concentration plant and the Severny-Gluboky mine, while it is looking at foreign projects "very critically" because "they are more expensive."
Potential return of 35%
The buyback price of $233 per share represents a 225% premium to the current market price, and most minority shareholders will take advantage of the offer and tender their shares, Uralsib said.
Considering that the free float is about 40%, Norilsk Nickel will be able to buyback shares on a proportional basis, setting a fairly low buyback coefficient of 16%, Uralsib said, citing a basic scenario.
If an investor were to buy shares at $72 and tender them in the buyback by October 28, the return on the investment with a 16% coefficient would be about 35% in the course of the month when the buyback will be carried out.
According to the basic scenario, 66% of minority shareholders, representing 24% of shares,...
|
