WHO WILL BUY Stillwater's majority owner, Norilsk

Published: 28 Jul 2009 16:54:59 PST

* Sale must fetch enough to cover RUSAL state bank debt

* RUSAL faces minimum payments of $7.5 billion over 4 years

* Deal comes up for vote at creditors' meeting on Wednesday

(Adds Norilsk share price, creditors' meeting, background)

MOSCOW, July 28 - Aluminium giant UC RUSAL must sell its stake in Norilsk Nickel when the price is right as part of a deal to restructure its $7.3 billion foreign debt, a sale for which the Kremlin could play reluctant broker, sources at creditor banks said.

The sources told Reuters on Tuesday the sale of RUSAL's one-quarter stake in Norilsk would be triggered when its value is high enough to cover the aluminium company's debts to state banks, including the $4.5 billion owed to VEB.

"It is obligatory, with certain conditions," one of the banking sources said on condition of anonymity.

Russia's once-mighty billionaires, including RUSAL majority owner Oleg Deripaska, face an enormous challenge to pay back debts accumulated when money was cheap and commodity prices at record highs.

A successful conclusion to RUSAL's restructuring talks is also essential to the ability of global banks to shoulder Russian risk and to Russia's ability to manage its $475 billion foreign debt.

Sources close to the talks had described the unresolved fate of the Norilsk stake as a major stumbling block to a deal, since it secures the largest single loan to RUSAL. The $4.5 billion facility from VEB falls due in late 2010.

"VEB and participants of the creditors' club are signalling that they are not interested in the stake per se, rather they would like RUSAL to dispose of the stake, receive cash and repay debt," Citi said in a research note.

"The market may have been assuming that the stake is firmly with state-owned banks," Citi said in the note, which downgraded Norilsk to hold from buy on uncertainty surrounding ownership.

The restructuring terms -- which come up for a vote at a creditors' club meeting on Wednesday -- contain a formula for determining the value of the 25 percent stake in Norilsk Nickel, the world's largest nickel and palladium producer, sources said.

The deal, which offers RUSAL a maximum seven-year extension, requires the company to pay a minimum $7.5 billion over four years to Russian and foreign creditors, who have lent a combined total of $16.8 billion to RUSAL, the banking sources said.


From their (RUSAL's) point of view they don't want to sell at too low a price. It would be a shame, the loss of value," said another source, who said the aluminium giant did not oppose the sale in principle.


$5 BILLION HANDY?

The sale obligation raised questions, however, about a potential buyer. The collapse in commodity prices demolished the wealth of Russia's metals barons, and Norilsk Nickel, as a strategic company, could not be sold to just anyone.

Prime Minister Vladimir Putin's top economic adviser told Reuters in an interview last month that the restructuring was "Western bankers' problem" but creditors say the state will play the deciding role in the fate of RUSAL's stake.

Russia regards Norilsk, which produces a fifth of the world's nickel, as a strategic asset and installed Kremlin deal-broker Alexander Voloshin as chairman last year to protect VEB's interest.

Norilsk's main owner Vladimir Potanin has expressed interest in the stake, while the stake's former owner Mikhail Prokhorov, now Russia's most cash-rich oligarch and a creditor of RUSAL, has said he favours a RUSAL-Norilsk merger.



"You have to ask yourself," one source said. "Who is going to have $5 billion handy and is already a strategic entity anyway?"