Russia’s Potanin weighs huge metals merger as protection towards sanctions

Fabrizio Guteres

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Russian businessman Vladimir Potanin has stated he’s keen to debate a potential merger between his mining group Nornickel and aluminum producer Rusal , a transfer that might strengthen their defenses towards any potential Western sanctions towards them.

Potanin instructed RBC TV he had despatched a letter on Monday confirming his settlement to begin merger discussions, citing the desirability of making a “nationwide champion” and increase “additional stability towards sanctions.”

Rusal, the world’s largest aluminum producer outdoors China, didn’t reply to a Reuters request for remark. The Kremlin, which carefully displays tie-ups between strategic Russian corporations, stated it was unaware of merger plans.

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Hong-Kong listed shares at Rusal rose by 11.35%, whereas Nornickel, the world’s largest producer of palladium and refined nickel, was down 3.8% in Moscow.

Neither firm has been immediately focused by Western sanctions imposed on Russia over the warfare in Ukraine, although Potanin himself was hit by British sanctions final week.

A tie-up would create a worldwide base metals big with mixed income of $30 billion. Nornickel’s palladium and nickel account for 40% and seven% of world mine manufacturing of those metals, respectively. Rusal produced 6% of world aluminum output in 2021.

Analysts stated their mixed clout might deter the West from imposing sanctions for worry of sending costs hovering for metals which can be crucial to its personal industries.

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The mixed firm can be “virtually invulnerable to sanctions, as world markets are critically depending on their merchandise. Particularly with the inexperienced agenda in thoughts,” stated Evgeny Kogan, professor on the Increased Faculty of Economics in Russia.

‘TOO BIG TO SANCTION’

“The argument ‘too huge to sanction’ sounds believable,” stated Maria Shagina, sanctions skilled on the Worldwide Institute for Strategic Research.

“I nonetheless suppose that america and the European Union should not prepared for the repetition of the April 2018 sanctions on Rusal.”

Rusal was topic to U.S. sanctions between April 2018 and early 2019 that triggered a soar in world aluminum costs. Washington eliminated Rusal from the sanctions record when its founder Oleg Deripaska agreed to relinquish management of it.

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Deripaska, nonetheless on the U.S. sanctions record, stays a robust tycoon in Russia. His relations with Potanin are chilly.

Potanin and Rusal personal 36% and 26% respectively of Nornickel, which had a market worth of $49 billion at Monday’s closing costs, based on Refinitiv Eikon information, in contrast with Rusal’s market capitalisation of $15 billion.

DEAL MAKER

Potanin has swooped aggressively to seize new alternatives since Russia despatched troops into Ukraine and the following sanctions remodeled the enterprise setting.

His Interros group snapped up Rosbank from Societe Generale when the French lender exited the Russian market, earlier than shopping for a 35% in TCS finance group at what its founder, Oleg Tinkov, stated was a knockdown worth.

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The tycoon’s public assertion was uncommon as a result of he sometimes maintains silence till his offers are clinched.

His feedback got here lower than per week after Britain slapped sanctions on Potanin and 6 months earlier than the expiry of Nornickel’s 10-year shareholder settlement that made him president of the miner – indicators that the transfer was pushed by a number of components.

“As a substitute of leaving the corporate, as many different huge businessmen have completed not too long ago [after Western sanctions on them], a extra elegant answer could also be discovered – to merge with Rusal,” Kogan stated on social media.

Interros Holding, which manages Potanin’s property, didn’t reply to a Reuters’ request for added remark.

The shareholder settlement, which expires on Jan. 1, covers the dimensions of dividends at Nornickel which has been the primary motive for on-and-off rows between shareholders at Nornickel and Rusal over the past 14 years.

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The potential deal is a threat for Nornickel’s future dividend funds and would offer restricted monetary synergies, analysts at BCS stated in a be aware.

Potanin instructed RBC TV that the dimensions of dividends to which traders at Nornickel have turn out to be accustomed lately will definitely not be obtainable in 2022 nor presumably in 2023.

Whereas Western sanctions haven’t immediately focused Nornickel, they’ve triggered issues with commerce finance and logistics.

“Potanin is flagging that they’re underneath stress from sanctions,” stated Tom Worth, head of commodities technique at Liberum in London. “Large miners all the time search low-cost funding. However the capacity of Russia’s miners to try this has been severely restricted.” (Reporting by Reuters; enhancing by Mark Trevelyan and Gareth Jones)

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