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By John Helmer in Moscow

Russia’s aluminium and nickel oligarchs go to the mat for state bank funding.

A fierce battle has begun for access to state bank cash to determine who ends up in control of Russia’s largest metal and mining companies, Norilsk Nickel and United Company Rusal.

Rusal spokesman Vera Kurochkina disclosed officially in Moscow on Wednesday that Rusal has applied for a large loan from Vnesheconombank (VEB), a wholly state owned institution, which has been ordered by the Kremlin to provide stand-by financing to domestic banks in current difficulty.

In addition to banks, several Russian oil majors, plus Gazprom, have told the government they need emergency financing to enable them to refinance their external debt in the global financial crisis. LUKoil says it wants to borrow between $2 billion and $5 billion. Rosneft, which is state owned, must pay $750 million by year’s end, and a further $2.4 billion in the first half of 2009.

Trading in Russian stocks has been halted more than once this week, but based on latest figures, Gazprom is 67% off its high price, with a current market value of $117 billion; LUKoil is 62% down with a current market value of $37 billion; the respective numbers for Rosneft are 68% down and $41 billion, and for Norlisk, 83% down and $11 billion.

Separately, nickel metal prices have fallen far further than crude oil and gas prices in the commodities rout. Norilsk also produces platinum and palladium, where price have also fallen severely. In broader terms, Russian and also Brazilian resources stocks have been among the most attacked in the world during the global markets crisis.

Kommersant, a Moscow business daily newspaper, reported that “Kurochkina told Kommersant that the company plans to turn to Vnesheconombank for funds to refinance its debts.” The newspaper reported another source as claiming that up to $5 billion may be sought to refinance Rusal’s earlier loan to pay Mikhail Prokhorov for his 25% stake in Norilsk Nickel. Kurochkina has refused to answer Mineweb’s questions regarding the extent of Rusal’s indebtedness and its repayment deadlines.

As Mineweb has reported in April, and earlier, Prokhorov and Rusal’s controlling shareholder, Oleg Deripaska, agreed that, in exchange for his 25% stake in Norilsk Nickel, Prokhorov would receive an 11% stake in the unlisted Rusal; $4.438 billion in cash up front; and $2.7 billion in deferred cash compensation. The first report of the transaction terms, based on a participant’s notes, appeared in December.

A source close to Prokhorov’s current dealings has told Mineweb that Prokhorov recently sent Deripaska a letter, invoking their sale and purchase agreement and UK court jurisdiction, to demand payment of $700 million by October 24. This amount appears to be an instalment of the $4.4 billion cash tranche. The sources told Mineweb the $2.7 billion tranche is not due for repayment until next April.

The Prokhorov demand appears to be for cash that had been presumed and reported in the marketplace to have been paid already, following the drawdown by Rusal of its loan from the London bank syndicate; the syndicate included Credit Suisse, ABN Amro, BNP Paribas, Barclays Bank, Calyon, ING Bank, Natixis, UniCredit, Goldman Sachs, and Morgan Stanley. Drawdown of the cash was scheduled for March, but was delayed for several weeks.

That loan, Rusal now acknowledges, is being renegotiated, because the value of the collateral of the Norilsk Nickel shares has dropped significantly, and because Rusal itself is feeling the pinch of the global commodity price and credit squeeze. Dollar prices for nickel have fallen 62% from peaks over the past year or so, while aluminum is down 33%. Rusal has issued a formal statement denying that it is selling its Norilsk Nickel shares to raise cash.

Prokhorov spokesman Igor Petrov was asked to confirm the payment demand and the deadline. Petrov told Mineweb: “We don’t have additional information on this. As soon as I will have something on this, I will inform you.”

A VEB spokesman, Svetlana Nikitina, was asked to confirm if a Rusal application for emergency funding had been received, and for how much. She declined to speak on the telephone; requested a written question; and has not responded to the email request.

As a state bank, VEB is subject to a high-level government decision on what rescue loans will be made available, in what amounts, and to what beneficiaries. The line of applicants is a long and expensive one, and Rusal is far from certain that it has the priority to get the cash it seeks.

A report from Moscow investment bank Troika Dialog, issued today, notes that the fall of Russian stock prices is pricing in “an oil price in the $50-60/bbl range. Russian stocks are now trading at discounts to global peers of 30-50% despite the strong macroeconomic framework. Asset valuations are also down to distressed levels at $2/bbl of oil reserves, $300 per mobile phone subscriber or EV/capacity of $170/MW of generation capacity; Russia is now trading at the same discount to global peers as it did in 2001, with a market cap of under 40% of GDP. The entire Russian oil industry can be bought for the price of Petrobras and the Russian banking industry for the price of ICBC.” Petrobras is trading 62% off its high prices, and carries a current market value of $76 billion.

The domestic political battle over who will emerge stronger, and who will go under, is likely to be fought in the first instance between applicants for state bail-out money through VEB. This is why, according to sources familiar with the strategy of Norilsk Nickel’s controlling shareholder Vladimir Potanin, there is lobbying against a state-funded bailout for Rusal to continue its hostile takeover of Norilsk Nickel.

Mineweb has reported that when Potanin and Deripaska were called in to meet Deputy Prime Minister Igor Sechin on July 28, they were told the government would not countenance further expansion of Rusal’s takeover ambition. Ten weeks later, Sechin, as the key resource policymaker after President Dmitry Medvedev and Prime Minister Vladimir Putin, must decide what the state wants to do with Rusal itself, if Deripaska can no longer afford to bear its liabilities.

Sources close to the Deripaska camp at his Moscow holding, Basic Element, concede that a second asset sale may shortly be announced, following the public announcement that Deripaska has surrendered the 20% stake acquired in Canadian auto-parts maker, Magna. This was triggered by the banks financing the asset purchase. A Base Element executive has said the holding is also likely to apply for VEB emergency finance.

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