Deripaska's Rusal pays off $4.5 bn loan

MOSCOW - The Kremlin is set to expand its influence at international mining giant Norilsk Nickel, after aluminum company Rusal, a major Norilsk shareholder, said the government would get a seat on the enlarged board of directors in return for helping Rusal pay off Western creditors.

Rusal, controlled by billionaire Oleg Deripaska, said Wednesday the company would get $4.5 billion in government loans, enabling it to avoid handing over its 25 percent stake in Norilsk to its creditors.

In return, the state would get a seat on an expanded Norilsk board and name two members of the management team at the world's biggest nickel and palladium miner, Rusal said in a statement.

Rusal had borrowed from a syndicate of Western banks earlier this year to buy the Norilsk stake. But the lenders threatened to seize the stake if Rusal did not meet an Oct. 31 repayment deadline.

State-owned VEB bank let Deripaska dip into government bailout funds aimed at softening the impact of the world financial crisis on the country's economy. The Rusal statement did not say whether the Norilsk stake had been pledged to the government as collateral for the assistance.

Still, the move led to speculation the government may eventually aim for a stake in Norilsk. Under the eight-year presidency of Vladimir Putin, the government gradually extended its influence over key sectors of the economy, reclaiming control of Russia's strategic oil and gas companies — but not those in metals and mining.

A representative at Interros, the holding company of chief Norilsk shareholder Vladimir Potanin, suggested the issue of government representation was still to be ironed out.

"The decision on government representatives will be discussed at the EGM (extraordinary shareholder meeting) on Dec. 26th," said the Interros official, who declined to be named due to the sensitivity of the matter.

Deripaska's business empire has come under intense pressure after plunging stock markets — driven down by the sagging price of oil — slashed the value of shares that he and other Russian businessmen — known as oligarchs — used as collateral to obtain loans. Creditors can demand more collateral or seize the stakes, and anothe

The state has emerged as one of the biggest winners of the crisis, swooping in to rescue troubled banks and dipping into its vast reserves to buy up cheap domestic stocks.

"I think this crisis has presented the government with the opportunity to eventually build the national champion that their portfolio is missing," said Chris Weafer, chief strategist at Uralsib bank. "I do expect they will use this opportunity to eventually convert whatever financial support they now give the company ... into an equity stake."

In his first state-of-the-nation address on Wednesday since succeeding Putin as president, Dmitry Medvedev said the government would not use the country's economic problems as an excuse to renationalize large chunks of the economy. Putin is now prime minister.

"The dramatic fluctuations in the political and economic situation, the turbulent global economy and even the escalation of military and political tensions will not be used as a pretext for dismantling democratic institutions or nationalizing industries and banks," he said.

State development bank VEB, through which the state is lending US$50 billion to banks and companies in emergency refinancing to support the financial system during the global market turmoil, provided the loan to Rusal with a term of one year.

Among those to benefit is Mikhail Fridman's Alfa Bank, which said last week it was seeking $400 million in government loans to stave off foreign creditors.

Deripaska appears to pay a steep price for the government handout. In addition to a board member, who Rusal said will be elected on Dec. 26, the state will also place two representatives on Norilsk's management team, the company said.

But Rusal said that it welcomed the government's entry to the board, noting that it would "weaken" chairman Vladimir Potanin's influence. Potanin is the single largest shareholder in Norilsk with approximately 30 percent and has been vigorously opposed to Deripaska's wish to merge the two companies.

One analysts said the government appeared not to be moving to take the stake just yet.

"I think they (the government) just want to be aware of what's happening in the company on the big-picture scale, since they are investing so much money," said Olga Okuneva, a metals analyst at Deutsche Bank. "It's all in the hands of Rusal. They have until the end of 2009 (to repay the loan). In the worst case scenario ... then this stake would go to the government."

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