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MOSCOW –

One of the oldest friends of Rusal owner, Oleg Deripaska, still calls him by the nickname, zaichik; that’s Russian for hare. The surname of Alexander Bulygin, Rusal’s chief executive, suggests the Russian for a cobble-stone (bulizhnik), but nobody calls him that for short.

The ancient fabulist Aesop didn’t think well of either hares or stones. He composed almost no fables with the former, and in those, the hare is too arrogant, or stupid, to avoid getting beaten, or eaten. As for stones, to Aesop they meant misfortune. Aesop’s animals have plenty to say about that. The hare he made immortal was the one who was out-run by a tortoise.

The big question for United Company Rusal, and its promoters, is whether the hare can carry the stone, or vice versa, across the finishing line represented by the first public sale of shares, due in four months’ time. There are already hints from the Rusal camp that they have begun arguing with each other over what’s best for getting there. That they are unable to agree is evident from the most recent series of presentations of Rusal, which Bulygin led for analysts of leading international banks in Boston, New York, Frankfurt, and London. Other presenters included Vladislav Soloviev, the chief financial officer; Oleg Mukhamedshin head of capital markets; Artem Volynets, head of strategy and development; and Valery Matvienko, head of engineering and construction. They spoke from a presentation kit running to 33 pages of colour slides, which have been obtained by Mineweb.

Analysts attending in London came from Morgan Stanley, Credit Suisse, UBS, Goldman Sachs, Citigroup, ABM Amro, Macquarie, Canaccord, ING, and Man Securities. Those analysts not invited claim the session was secret. Those organizing say they invited everyone who was significant in the market. In the past, Rusal has warned bank lenders that if they were found to be leaking financial information about Rusal, they would be dropped from lending syndicates. This followed the first financial disclosures from Rusal’s balance-sheet published by Mineweb in October 2003; the data included cash balances, related-party borrowings and transfers, profits and dividend payouts, at a time when Rusal was caught in a serious shortage of cash, following Deripaska’s buyout of a 25% stake in the company then owned by Roman Abramovich. The financial troubles continued to plague the London lending syndicate for months afterwards. Mukhamedshin blamed the leaks for his difficulty.

Although Rusal has reported that PriceWaterhouseCoopers has been auditing its books to US GAAP criteria for several years – KPMG has been proposed as the auditor to certify the books for the London share sale – public financial releases from the company have been limited to semi-annual revenue and investment announcements, plus tombstones for debt placements and bond issues. The highly sensitive issue of how international lenders secured against Rusal’s repayment risk, as Rusal’s metal changed title from one offshore trader to another has never been released. The even more sensitive issue of Rusal’s record in complying with loan covenants has never found its way into print at all.

Until June of this year, it had been more than seven years, from February 2000, when Renaissance Capital issued a report on Rusal, since Bulygin and his colleagues made such a public attempt to expose their company to standard market analysis. The RenCap report ran to 29 pages, and claimed it was initiating coverage. In fact, RenCap abandoned reporting on Rusal soon after, and the author of the report, Vladimir Titkov, left. He joined Rusal, and has resurfaced as one of the directors of the new Rusal board.

Titkov’s report disclosed more in 2000 than Bulygin’s presentation revealed last month. Titkov revealed his estimates for 2001 and 2002 of cost of sales, EBITDA, EBITDA margin, operating profit, operating profit margin, pre-tax profit, and pre-tax profit margin. Some of his projections turned out to be wrong. The latest Rusal presentation doesn’t run that risk, and cannot be wrong, because there are no projections for future financial performance. A single slide, titled “key unaudited [sic] historical financials” presents revenue data for 2004-2006; EBITDA, EBIT, and capital expenditure. Another single side presents a history of Rusal’s borrowings, and an estimate of unaudited debt as of June 1, 2007.

Rusal’s advisors have told Mineweb that the presentation was a “get to know you visit – an introduction to the company, not an IPO roadshow.” They also claim that they have consolidated Rusal’s vast offshore trading system and tolling operations into a single set of financials. That was done, according to one source, during the technical work for the merger between Rusal, SUAL, and Glencore between October of last year and the end of this March. Until a sample of these consolidated data is presented in public, there is no telling whether Rusal remains the secretive shell company it was in 2001, and where its cashflows end up for tax, related-party loan, dividend, and investment purposes.

Rusal, concludes the two-slide financial presentation, “has significant flexibility to grow”. Missing is the disclosure of the way in which Rusal and its trading units have grown apart, allowing profits to be accumulated offshore, and Rusal to record the lowest tax rate for a Russian metals company (according to a report to the Russian Ministry of September 2004).

Pricing Rusal, US bankers concede, is the key to the IPO. Rusal’s maiden presentation allows no glimpse of risk, or of the last three years of balance-sheets, to produce a model from which the share pricing can be estimated by the conventional methodologies. This can only raise the risk premium for Rusal’s placement significantly higher than is currently fixed by Rusal’s debt financing banks, who know the company much better.

Most of the presentation slides focus on promoting the global aluminium business as an investment target, rather than Rusal as such. Rusal’s attractiveness is expressed as a function of its ‘’unparalleled access to low cost power”, and to internally priced bauxite and alumina, produced from associated mining and refining assets. There is no discussion of the risk of Rusal’s exposure to a change of Russian government policy on electricity tariffs and ownership of electricity generating units. Nor is the presentation concerned with the growing troubles Rusal faces at its principal source of bauxite, in the Republic of Guinea, where domestic opposition to the weakening Conte regime. Among the “exceptional portfolio of growth opportunities”, the presentation identifies two new bauxite mines in Guinea, Dian-Dian and Kindia-2. Investors who see that will need a course in West African succession politics to appreciate their value. The seriousness of the risk is indicated by the hostage-taking of Rusal’s senior managers in Nigeria last month, and the ransom and related political negotiations that are ongoing.

Some of what is missing from the presentation can be filled in from US and UK litigation files and judge’s rulings.

“The senor team has extensive experience and a track record of managing growth”, the presentation kicks off. According to a UK High Court ruling by Justice Jack, in November 24, 2003, three of the team have to be taken with a pinch of salt – chief executive Bulygin; Andrei Raikov, head of the raw materials division, and Pavel Ovchinnikov, head of the alumina division. Ruling against Rusal’s subsidiary, Guinea Investment Limited, in a claim brought by three influential advisors in Guinea, the judge ruled that testimony from Raikov was “nonsense, which must throw considerable doubt on the rest.” Regarding Ovchinnikov’s evidence, according to the judge, “Ï should place little weight on the relevant passages…” The judicial ruling also reveals that Bulygin had written a letter to the Guinean President asking for his help, and intimating corruption on the part of those then suing Rusal. Justice Jack reacted sharply. ”It is apparent,” he said, “from these matters that under the threat of litigation in London, Rusal have done what they can to blacken the names of Tekron and its principals in Guinea. On the evidence before me, they have not only failed, but have secured indirect evidence that the government considers that Tekron have behaved properly in its relations with the government.”

Rusal paid Tekron the court award. But that has not been the end of rulings from the High Court bench condemning Rusal’s business practices. In 2006, Justice Morrison of the High Court ruled that Rusal had been behind an action brought against by the Tajikistan Aluminium Company (Talco), which Rusal had taken over and controlled since December 2004. According to the judge, the plaintiffs in that case “are not the victims of fraud, they have been the perpetrators of it in this litigation…. [Talco] has been involved in deliberate attempts to mislead the [Arbitration] Tribunal and have committed acts which in this jurisdiction are serious crimes…” It is rare for the veracity of a major international company of Rusal’s size and influence in the market to be called into question, as the court record in London shows.

In an apparent effort to remedy this, Rusal’s presentation spoke of ‘’world class standards of corporate governance”, adding that the company “‘intends to comply with the UK Combined Code on Corporate Governance”. The slide reports that 7 independent directors are to be appointed. Two have already been announced, and the third was disclosed in Moscow on July 23. Simon Thompson, the former Anglo American executive, has been named chairman of the board. Thompson had been the internally favoured candidate to succeed Tony Trahar as chief executive, but Cynthia Carroll defeated him. He then resigned on April 13. He has also trailed the field as Rusal’s choice, after Mike Salamon, former BHP Billiton executive refused, as did others.

Separate from the corporate team, Rusal has named “a highly qualified international advisory board “whose mandate includes advice “on international standards of transparency and good business practice”, and on “good relations between US Rusal and the local governments and regulators in the countries in which the company operates.” The miner on the board is Peter Munk, chairman of Barrick. The only aluminium veteran is Randolph Reynolds, with whom Rusal did business in Guinea. Two Rothschilds have seats, plus a French and an American academic. The American Graham Allison, who has been a political scientists at Harvard University, was asked what he knew of the reputation for veracity which Rusal owner, Oleg Deripaska, has secured with the US authorities, who revoked his entry visa last year. He did not answer that question, or others relating to the remuneration the board members have been promised for their efforts leading up to the IPO.

Rusal used to present itself as being a vertically integrated group, with an emphasis on capturing cost and other synergies from the direct links between bauxite mining, alumina refining, metal smelting, rolling mills, and related enterprises in foil and can manufacture, down to the consumption of aluminium in aerospace and auto manufacture. In 2004, Rusal abandoned aluminium fabrication when it sold its Rostov and Samara rolling-mills to Alcoa. Early this month, it sold its can manufacturing unit to Rexam. Whether it sells its foil mills remains to be seen. Rusal, according to the presentation, “has a balanced portfolio and is focused on upstream activities. “Apart from production numbers, there is no financial breakdown to show how pricing or profit is transferred through the current corporate structure.

Bulygin has made clear he believes the future of the company is as a primary aluminium producer, integrated with raw materials bauxite, alumina and electricity. Downstream aluminium consumers, on which Bulygin had once placed great and public hopes – airframe, auto and bus manufacture, housing construction – have all been restructureed under Deripaska’s holding, Basic Element, which is run by Gulzhan Moldazhova. It has been her job to run Deripaska’s cashflow into and out of the aluminium business for a decade. In that role, she is more important to Deripaska than Bulygin.

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