Russia’s Potanin weighs $60 billion metals merger as defence against sanctions

Vladimir Potanin, co-owner of Norilsk Nickel, attends an settlement signing ceremony with the Krasnoyarsk area’s authorities, in Moscow, Russia December 12, 2017. REUTERS/Sergei Karpukhin

July 5 (Reuters) – Russian businessman Vladimir Potanin has mentioned he is able to focus on a doable merger between his mining group Nornickel (GMKN.MM) and aluminium producer Rusal , a transfer that might strengthen their defences towards any doable 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 “further stability towards sanctions”.

The preliminary proposal, which might create an organization with a mixed worth of about $60 billion – just like Glencore, got here from Rusal administration, he added.

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

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 instantly focused by Western sanctions imposed on Russia over the struggle in Ukraine, although Potanin himself was hit by British sanctions final week.

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

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

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

‘TOO BIG TO SANCTION’

“The argument ‘too massive to sanction’ sounds believable,” mentioned 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 brought on a leap in international aluminium costs. Washington eliminated Rusal from the sanctions checklist when its founder Oleg Deripaska agreed to relinquish management of it.

Deripaska, nonetheless on the U.S. sanctions checklist, stays a strong tycoon in Russia. learn extra 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, in response to 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 reworked the enterprise atmosphere.

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, mentioned was a knockdown worth. learn extra

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 every week after Britain slapped sanctions on Potanin learn extra and 6 months earlier than the expiry of Nornickel’s 10-year shareholder settlement that made him president of the miner – alerts that the transfer was pushed by a number of components.

“As a substitute of leaving the corporate, as many different massive businessmen have carried out lately [after Western sanctions on them], a extra elegant resolution could also be discovered – to merge with Rusal,” Kogan mentioned 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 principle cause for on-and-off rows between shareholders at Nornickel and Rusal during the last 14 years.

The potential deal is a danger for Nornickel’s future dividend funds and would offer restricted monetary synergies, analysts at BCS mentioned in a notice.

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

Whereas Western sanctions haven’t instantly focused Nornickel, they’ve brought on issues with commerce finance and logistics.

“Potanin is flagging that they’re below strain from sanctions,” mentioned Tom Value, head of commodities technique at Liberum in London. “Massive miners at all times search low-cost funding. However the means of Russia’s miners to do this has been severely restricted.”

Reporting by Reuters; enhancing by Mark Trevelyan, Gareth Jones and David Evans

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