By John Helmer, Moscow
Oleg Deripaska (right), the chief executive of United Company Rusal, not only persuaded Muammar Qaddafi and his son, Saif al-Qaddafi (left), to invest in Rusal shares to support the company’s listing in Hong Kong last year. It now appears the Libyans also bought a stake in Norilsk Nickel to assist Deripaska in his hostile takeover bid against Norilsk Nickel, which is controlled by Vladimir Potanin and the Russian government.
How much Deputy Prime Minister Igor Sechin and other high-ranking Russian officials supervising Rusal, as well as Russian state bankers to Rusal, VEB and Sberbank, are aware of the Libyan intervention in the stockholder fight is not known.
The Libyan leadership, now under daily and nightly bombing by NATO forces and under global financial sanctions imposed by the US and UK governments, paid $302 million for a stake in Rusal in 2010, and $269.2 million for a shareholding in Norilsk Nickel. The shares were held by the Libyan Investment Authority (LIA), either directly or through one of nine LIA subsidiaries, which in turn are holding the shares through international brokerages or fund managers.
As of June 30, last year, the two Russian companies ranked fifth and sixth on the list of strategic equities held by the Libyan Investment Authority (LIA). Ahead of them were the Italian bank and energy companies, Unicredit and ENI, Siemens of Germany, and owner of the Financial Times of London, Pearson. The value of the Russian equity for the LIA put Russia fifth on the table of strategic country targets for Libyan investment; ahead of Russia were (in order of magnitude) Italy, Germany, United States, and Britain.
The biggest Libyan equity investment in the UK was in the owner of the Financial Times, Pearson Plc. It is highly unusual for NATO-designated pariah states, targeted for regime change, to be holding large shareholdings of international financial media companies. The FT sought to put distance between its editorial independence and its owner’s shareholder obligations by reporting today from the LIA evidence. Headlined “Libya sovereign fund suffers big losses,” most of the text of the FT publication focuses on the French bank, Societe Generale. At the fourth line from the bottom, the FT reports: “The LIA is also a shareholder in Pearson, owner of the Financial Times.”
Omitted by the FT is the value of the stake in Pearson at $335.4 million, the 4th largest in LIA’s equity portfolio at the time; that would have amounted to about 3% of Pearson’s stock issue. Also omitted from the FT’s report of the LIA’s lossmaking investments is the fact that today the Libyan stake in the FT’s proprietor would be up by almost a third.
The principal banker holding LIA cash, according to the disclosure, was Hongkong and Shanghai Banking Corporation (HSBC), with $292 million, 72% of all the cash on deposit.
No Russian bank was used by Saif al-Qaddafi, who directed the LIA and consulted on the politics of its investments with his father. Nor did the Qaddafis buy Russian bank, state or commercial bonds.
However, there is unusual evidence in the report of Libyan involvement in the battle between Deripaska and Potanin, the main shareholder of Norilsk Nickel, whose premium-priced offers to buy back Rusal’s 25% stake in Norilsk Nickel have been accepted by minority shareholders, but rejected by Deripaska and his private syndicate. Theirs has been one of the most protracted and costly shareholder fights in the world.
The Libyan involvement appears in this  19-page Management Information Report of LIA. Based on the listing price of HK$10.80, the LIA report indicates that the Qaddafis authorized the purchase of more than 217,000 shares of Rusal. Although this stake was reported  in November 2009 as part of a pre-arranged “cornerstone” shareholding agreement between Deripaska and the Qaddafis, the Rusal prospectus makes no reference to the Libyan Investment Authority, Saif or Muammar al-Qaddafi.
In Rusal’s published version of its cornerstone shareholding agreements, just four investors are named – Vnesheconbank (VEB), with an investment of about $665 million; Nathaniel Rothschild, with $100 million worth of shares; John Paulson, an American hedge-fund operator, with a commitment of $100 million; and Kuok Hock Nien (Robert Kuok), the Hong Kong investor with just $20 million. Based on these prospectus calculations, the Libyans were the second largest of the cornerstone investors, giving Deripaska more money than the Rothschilds, Paulson and Kuok combined.
This has been a secret Deripaska and Rusal have attempted to keep. Asked what impact the war in Libya has had on Rusal’s relations with the Libya Investment Authority, the company refuses to answer.
At June 30, 2010, when Norilsk Nickel’s market capitalization was just under $28 billion, the Libyan stake in Russia’s largest mining company appears to have amounted to 0.9% of the shares on issue. It isn’t known whether the shares were sold since then. But supposing they were not, as the Qaddafis instructed LIA to treat Norilsk Nickel as a strategic holding, the stake appears to have been hidden on the Norilsk Nickel share register by either FIL Investments, an arm of Fidelity of Boston, or by PGGM Vermogensbeheer of the Netherlands, whose recorded shareholdings correspond to the size of the LIA stake. At today’s value, instead of recording the loss LIA was booking as of June 30, 2010, the equity value of its participation in Norilsk Nickel is up 72%. At nominal current value of $428 million, the Qaddafis have earned 159% on their investment.
That the Libyans voted their shares with Deripaska and Rusal to attack Norilsk Nickel is now strongly suspected in Moscow. But because of the secrecy surrounding Deripaska’s relationship with the Qaddafis, this cannot be confirmed. So far, the latter’s earning on Rusal has been far less than the gain on Norilsk Nickel – less than 5%. For as long as the war against Libya continues, it isn’t certain that Deripaska can legally deliver dividends to LIA, or the LIA cash out of Russia, if at this stage of the war game, that’s what the Qaddafis want.