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  1. Wealth
January 28, 2009

Deripaska plays Russian roulette

By Spear's

Hapless RBS has lent him ’2.8 billion, which should tide him over nicely to the end of the next boating season.

Oleg Deripaska of Queen K fame has problems. It all began when his holding company Basic Element had to start taking cash from Subsidiary A to prop up Subsidiary B: Basic owns 60 per cent of Ingosstrakh, Russia’s number two insurer which enjoys strong cashflows, which has been required to pay €8 million for a 25% stake in Strabag, an Austrian construction company also owned by Deripaska, who now wants to become a director of the insurer.

This has upset Petr Kellner, the Czech minigarch, who had bought 38.5 per cent of Ingosstrakh with Generali as his partner, before Deripaska promoted a huge Rights Issue in October that diluted the Czech down to size and under 10 per cent.

Deripaska, you see, is seeking financially strong investors for all his businesses, including U C Rusal, the world’s largest aluminium producer and it would clearly be advantageous to have a seat and a hand nearer to Ingosstrakh’s cash pile.

Unfinished business is still clearly on this insurer’s agenda, but in the meantime Deripaska has found a major backer, the hapless RBS, which has lent a subsidiary of his a mere £2.8 billion, which should tide him over nicely to the end of the next boating season.

U C Rusal itself is wallowing in an enormous amount of debt as it attempts to restructure $17 billion it owes, including $2.8 billion to Mikhail Prokhorov, the vendor of the 25% stake in Norilsk Nickel, $7 billion to mostly Russian state banks and another $7 billion to 72 foreign banks.

It wants the Russian State to convert $6 billion of its Russian state bank debt, the loan which was made to prevent foreign creditors seizing its 25 per cent stake in Norilsk Nickel in 2008, into Preference Shares. No wonder Rusal is seeking a standstill agreement, as Deripaska himself engages fast forward to save his empire from total collapse.

What’s really at stake is this: Deripaska wants to unite Norilsk Nickel with steel groups Mechel and Evraz, metals group Metalloinvest, and Uralkali, a potash producer, in which grouping Russian Technologies would take a 25.001 per cent stake in exchange for debt write-offs.

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Deripaska’s industrial logic is real 1960s synergyless thinking: iron ore, coal, steel mills and nickel all make stainless steel, but the fertiliser operation is a touch untidy. What Deripalska is really after, however, is to keep Rusal out of this proposed combination, and one hundred per cent for himself.

In the other corner is Alisher Usmanov, owner of Metalloinvest, who wants to combine with Norilsk Nickel and Russian Technologies.

Presiding over this industrial goulash is President ‘Vlad the Bad’ Putin, of Russian Technologies and state-owned banks like VEB, $6 billion lenders to Rusal. What he wants is power for the state to avenge the 1995 infamous “loans for shares” privatisations, involving Norilsk Nickel and part of Mechel Steel, when the Monopolygarcks received cut-price industrial stakes after bailing out the near-bankrupt state.

In this game of Russian Roulette someone is going to get the bullet, but any minority shareholders can save their skin and walk away from the table by handing over their shares now, before they get caught in the cross-fire… Just ask Petr Kellner.

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