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Rusal to Make IPO Debut in Hong Kong Trading as Markets Drop
Jan 27,2010 08:56CST
industry news

HONG KONG, Jan. 27 -- United Co. Rusal Ltd. will become the first Russian company to trade its shares in Hong Kong today, testing demand for new equity after the city's benchmark index dropped 12 percent from a November high.

The world's largest aluminum producer booked net proceeds of HK$16.7 billion ($2.1 billion) selling shares at HK$10.80 each in Hong Kong's first initial public offering of 2010. The IPO was delayed at least twice by regulators and restricted to wealthy and corporate investors on concern about its $14.9 billion of debt.

Rusal, controlled by billionaire Oleg Deripaska, found buyers for all the stock on offer after winning investments from Asian billionaire Li Ka-shing and New York hedge-fund manager Paulson & Co. Retail demand for the shares may be muted as investors globally retreat from risk on concern lending curbs in China, and U.S. plans to rein in banks will stifle the global economic recovery.

"It's the big institutional investors which are involved here and they will try to support the share price, but I can't see much interest coming from smaller investors," Timothy Kwai, analyst at Quam Securities, said in Hong Kong. "They know that Rusal is heavily in debt."

Hong Kong's benchmark Hang Seng Index has fallen for five days, extending a decline from its Nov. 16 high of 22,943.98. Investors are concerned the Chinese government will rein in liquidity to contain asset bubbles after China posted the fastest economic growth since 2007 in the fourth quarter.

Rich Friends

The IPO was "moderately over-subscribed," Moscow-based Rusal said in a Jan. 25 statement to the Hong Kong exchange. The stock will trade in blocks of 24,000 shares, or HK$259,200 at the listing price.

Rusal reserved about 39.4 percent of the IPO shares for Malaysian billionaire Robert Kuok, hedge fund Paulson, NR Investments Ltd., the principal investment company of Nathaniel Rothschild of the banking family, and Russian state development bank Vnesheconombank, or VEB.

The IPO price gives Rusal an enterprise value that is 11.7 times the 2010 earnings before interest, tax, depreciation and amortization, or Ebitda, people familiar with the sale said last week. The enterprise value is a sum of a company's market value, equity and debt minus cash.

Aluminum Corp. of China Ltd., the nation's largest producer of the metal, trades at an enterprise value 13.8 times its 2010 Ebitda, and Alcoa Inc., the biggest U.S. aluminum maker, at 7.4 times, according to data compiled by Bloomberg.

Rusal's IPO comes less than two months after it completed Russia's biggest corporate debt restructuring.

Profit Forecasts

Rusal posted a loss of $868 million in the first half of 2009, compared with net income of $1.4 billion a year earlier. Profit won't be less than $434 million for the full year, it said in the IPO prospectus.

Borrowings almost doubled after the company bought a quarter of OAO GMK Norilsk Nickel before commodity prices collapsed in 2008. The company cut debt to $14.9 billion, while extending repayments to as long as seven years, in the restructuring completed in December.

Rusal's debut may attract other Russian companies to Hong Kong. OAO Russian Railways, operator of the world's longest rail network, said Jan. 21 it may consider the city for the proposed dual listings of two units.

"Traditionally, after the fall of the Soviet Union, Russian companies have looked to London for finance," said Eric Kraus, a strategist at Otkritie Financial Co. in Moscow. "But with large pools of capital in Greater China, particularly interested in resources companies, then the trend will move towards the East."

Aluminum Rises

China, the world's largest metal consumer, spurred price increases in raw materials last year as its $586 billion stimulus spending raised demand from builders and automakers.

Aluminum futures gained 45 percent in London last year, and Alcoa said on Jan. 11 that global demand will increase 10 percent this year, led by China.

Rusal is in a stable financial position, having cut costs, restructured debt and benefited from higher aluminum prices, Deputy Chief Executive Officer Artem Volynets said Jan. 11.

"There could be a downside if there's news which might suggest lower future demand for aluminum, or maybe political upheavals in Russia," said Ben Collett, head of equities at Louis Capital Markets HK Ltd. "These could affect the stock, but generally I think it should do pretty well."

The Guinean government has taken Rusal to a local court, alleging the Russian company owed it $860 million, Hong Kong's South China Morning Post quotedMahmoud Thiam, the minister of mines, energy and hydropower, as saying on Jan. 24.

Rusal said a new Guinean administration was formed this month and Thiam no longer represents the nation. It also said it "has fully disclosed all relevant details regarding Guinea in its prospectus and has nothing new to add."

BNP Paribas SA and Credit Suisse Group AG led banks including Bank of America Merrill Lynch, BOC International Holdings Ltd., Nomura Holdings Inc., Renaissance Capital Ltd., OAO Sberbank and VTB Capital SA in arranging the sale.


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