By John Helmer in Moscow

In some cultures it is considered entertaining sport for a crowd to watch roosters tear each other to death with specially-fitted steel talons. In other cultures, the crowd prefers to watch a man in fancy-dress stab a bull that has been specially bred to do nothing unpredictable with its horns. In yet others, the crowd pays to watch naked women wrestling in mud.

For entertainment, the debt throes of Oleg Deripaska’s United Company Rusal and his Moscow holding, Basic Element, combine all three, though Deripaska himself remains about as transparent as the mud wrestlers.

That’s one of the reasons the Russian government made a little-noticed but unprecedented announcement late on Friday. For the first time, Deripaska’s aluminum empire is to be investigated by auditors from the Accounting Chamber, as the Russian state auditor is known. For years, the Moscow-based chamber, headed by former prime minister Sergei Stepashin, has tried to investigate the multi-billion dollar cashflows generated by Rusal, mostly by export trading schemes employing dozens of companies around the world.
(more…)

by John Helmer - Tuesday, November 4th, 2008
No Comments »

By John Helmer in Moscow

Leading Russian steel producer Evraz revealed its financial crisis management plan in Moscow on Thursday, although it claimed it will try to avoid cutting domestic jobs.

Evraz said it will cut output for the second half of this year by 25%, compared to to the first half, in Russia and Ukraine. In a press briefing, details of which have not been posted on the Evraz website, Pavel Tatyanin, a senior executive, said Zapsib had halted one of its three blast furnaces this week, and working hours are being reduced at other Evraz mills in Russia. No change in output or jobs is planned for North America, Europe, or South Africa, where steelworkers’ unions are more powerful than in Russia.

Tatyanin also said that capital expenditure by the group would be reduced this year from a planned $1.5 billion to $1 billion, and projects worth another $1.8 billion may be postponed. Next year’s capex may be slashed to $400 million — about one-third of the planned level. The De Long acquisition in China — costing an estimated $754 million — is to be delayed.
(more…)

by John Helmer - Sunday, November 2nd, 2008
No Comments »

By John Helmer in Moscow

MOSCOW – After years of on-off negotiations and recriminations between Beijing, Moscow and Tokyo, Russia’s state pipeline company Transneft agreed this week to complete construction of a pipeline to deliver crude oil between Skovorodino, in southeastern Siberia, and Daqing, the oilfield and refinery hub in northeast Heilongjiang, in China.

The agreement, signed during Chinese Premier Wen Jiabao’s visit to Moscow to meet with Prime Minister Vladimir Putin, will be sweetened by up to US$15 billion in long-term Chinese credits for Russian state oil producer Rosneft, and up to $12 billion to Transneft. In return, the Russians will commit to delivering not less than 300,000, and up to 600,000 barrels of crude oil per day to Daqing, including pipeline and rail deliveries.

Just 60 kilometers separate Skovorodino from the Chinese border, but getting the Russians and Chinese to agree to pump oil over that distance and join a Chinese-built pipeline on the other side of the border has been a protracted affair lasting for more than four years. There’s just one catch to the new agreement – it has been agreed more than once before.
(more…)

by John Helmer - Thursday, October 30th, 2008
No Comments »

Now you see Murli Deora, now you don’t — what game are the Indians playing with Russian oil?

By John Helmer in Moscow

India’s Minister of Petroleum and Natural Gas, Murli Deora, was to have been in Moscow last week to urge approval of a controversial plan to put ₤1.4 billion into a London-listed company called Imperial Energy Corporation, whose oil deposits in the Tomsk region of Siberia are years from full production; whose current operations are loss-making; and whose oil, when it finally is lifted, will either be refined in Russia, or be exported by pipeline to China.

Satbir Singh, acting ambassador at the Indian Embassy in Moscow, was flummoxed when asked to explain whether or not Deora had been expected on October 23, the minister’s announced date of arrival. “We have no concrete information”, Satbir said through a spokesman, while the official spokesman of the Embassy, A.V.S. Rameshchandra, made himself incommunicado for the day. He left a message on his desk, advising callers that if they had a question about Deora, they should call Delhi.

There, it turned out, Deora’s subordinates were announcing that Deora would be in Moscow on November 4. They added that he isn’t making the trip to promote the Imperial Energy takeover by the state-owned offshore oil holding, ONGC Videsh. According to S. Sundareshan, a ministry official, Deora’s two-day trip next month will aim at securing the Russian government’s support for ONGC to buy stakes in other Russian oilfields and gas fields, though which ones Sundareshan didn’t say. R.S. Sharma, chairman of the Oil and Natural Gas Company (ONGC), the parent of ONGC Videsh, announced that “the Imperial transaction may not be on the agenda.”
(more…)

by John Helmer - Tuesday, October 28th, 2008
No Comments »

By John Helmer in Moscow

An attempt by lenders to Alrosa to increase charges for a $350 million one-year syndicated loan has triggered recriminations between the banks in the syndicate, and a categorical denial by Alrosa that it has agreed to pay more.

Morgan Stanley heads the syndicate, which also includes Bayerische Landesbank (BayernLB) and WestLB. BayernLB has recently reported heavy writedowns from exposure to high-risk derivatives in the US market. WestLB says it has been less directly affected, in part because it sold its risky securities portfolios to a special purpose vehicle, thereby ring-fencing the profit of the main bank.

BayernLB is one of the weakest of the German banks exposed to the current financial crisis; it reported this week that it will have “negative earnings before taxes of around EUR 1 billion for the third quarter”. The losses will grow in the fourth quarter, the bank has admitted.
(more…)

by John Helmer - Friday, October 24th, 2008
No Comments »

By John Helmer in Moscow

The share price of Archangel Diamond Corporation (ADC) collapsed yesterday as a company statement acknowledged that its fund-raising of $174.4 million to restart the Grib pipe mining project, in northwest Russia, will be returned to shareholders.

ADC issued its statement after PolishedPrices.com had reported that delays in issuing project approvals by the Russian government had violated last Friday’s October 17 deadline for implementation of the funding commitment.

The text, issued from ADC’s Toronto office, said: “With respect to the US$172.4 million private placement of Subscription Receipts described in the Corporation’s news release dated June 24, 2008, Archangel announces that the Escrow Release Conditions as defined in the Subscription Receipt Agreement dated June 24, 2008 between the Corporation and Computershare Trust Company of Canada (“Computershare”) were not satisfied by 4.00 pm Toronto time on October 17, 2008. The Corporation was unsuccessful in obtaining an extension, consequently each Subscription Receiptholder’s escrowed funds, plus any accrued interest earned thereon, will be repaid pro rata to each such holder by Computershare in accordance with the terms and conditions of the Subscription Receipt Agreement.”
(more…)

by John Helmer - Tuesday, October 21st, 2008
No Comments »

By John Helmer in Moscow

Novlipetsk Metallurgical Company (NLMK), the third ranked Russian steelmaker owned by Vladimir Lisin, is considering whether to cancel two recently announced US acquisitions — John Macneely Corporation (JMC) and Beta Steel. JMC was purchased for $3.54 billion in August; Beta Steel for $400 million in September. The deals are not complete, but closure had been expected before the year’s end.

NLMK spokesman Evgeniy Lukashevich claimed Friday that nothing was happening, telling CRU Steel News: “I have no update to our previous statement, when we announced that we expect to close the deal in 4Q2008.”

Two days earlier, on October 15, in a filing with the US federal district court in New York, the Carlyle group, seller of JMC, revealed that there was a disagreement over revising the price for the JMC transaction. Carlyle and its subsidiary, DBO Holdings, which owns JMC, asked the court to enforce completion of the transaction, or require NLMK to pay costs and damages. According to Moscow reports, which NLMK sources no longer deny, NLMK has asked Carlyle to lower the sale price to take account of the changed circumstances in the global steel market, the fall of steel prices, and a sharp rise in borrowing costs for the deal. NLMK’s bankers — Merrill Lynch, Societe Generale, and Deutsche Bank — have reportedly lifted the interest rate from an initially agreed LIBOR plus 45 points to LIBOR plus 145-320 points.
(more…)

by John Helmer - Monday, October 20th, 2008
No Comments »

Delay and new cost conditions may persuade De Beers to abandon the Grib pipe

By John Helmer in Moscow

Unclear conditions set for De Beers’ s new Archangelsk region diamond project, and unexplained delays by the Russian government in communicating them, are likely to trigger the cancellation of the $172 million fund-raising, held last June by Archangel Diamond Corporation (ADC). The money to finance the restart of the big diamond mining project has been held in escrow since the placement was closed on June 24. It is now likely to be returned to its contributors, who have seen the value of their shareholding in ADC fall by 60% since June.

On October 10, Russia’s Control Commission for Foreign Investment, a cabinet-level body chaired by Prime Minister Vladimir Putin, reviewed the application by De Beers and LUKoil for state approval of its joint venture to mine the Grib diamond pipe, with an estimated $7 billion in mineable diamonds. A public announcement of the approval was issued to the press by a member of the commission, Igor Artemyev; he heads the Federal Antimonopoly Service (FAS), which is the staffing agency for the commission.

The commission should have produced a signed protocol of its ruling, and sent it to De Beers and LUKoil within three days of signing. But ADC has not announced this receipt yet. FAS sources were unable to say on October 20 whether the protocol has been signed. According to the commission regulations, once the signed notice of decision has been sent to the applicants, they have 20 days to confirm their acceptance.
(more…)

by John Helmer - Monday, October 20th, 2008
No Comments »

By John Helmer in Moscow

The first sign of a Russian economic crisis is a line of desperate people, pushing and shoving outside a locked door, on which a scribbled sign has been posted indicating that the cash those outside thought they owned would be unavailable until further notice.

In the classic Soviet tradition, a handful of enterprising individuals would go to the back door to see what could be arranged out of the glare of publicity and with a little bribery for those inside. There they were told the truth – their money had gone.

So far, as the financial crisis continues to engulf the world, only four or five Russian banks have gone to the wall, visibly – KIT Finance, a small St Petersburg investment institution connected to cabinet ministers; Bank Soyuz, the cash box of Oleg Deripaska’s aluminum-based holding; EvrasiaTsentr (“Eurasia Center”), a tiny Moscow lender; and Globex, a slightly bigger retail deposit bank, also in Moscow.

All have been swiftly secured, without the distress becoming too public or a line of angry depositors forming outside. The sale of Renaissance Capital, a fifth investment house, for a fraction of its pre-crisis value, was another distress sign, but not in the mass market.
(more…)

by John Helmer - Wednesday, October 15th, 2008
No Comments »

By John Helmer in Moscow

Russia’s vice premier for energy and resources, Igor Sechin — who is also chairman of Rosneft, the state owner oil producer and lead exporter — met behind closed doors on the weekend with the heads of Russia’s oil and gas majors to discuss their refinancing problems.

State intervention to support the oilers’ debt rollover is likely to be followed by further support measures for the state-controlled tanker companies, which faces rising foreign debt bills for their tanker newbuilds. Sechin, who also supervises shipbuilding and ports, and is closed aligned with Gunvor owner, Gennady Timchenko, has recommended giving the oil companies a total of $9 billion via the state development institution, Vnesheconombank (VEB), so that they can refinance foreign loans over the next nine months. Analysts believe this will be divided into $1 billion for Gazprom, $1.8 bilion for TNK-BP, $2 billion for LUKOIL, and $4.2 billion for Rosneft. The final distribution of the funds will be decided at the VEB board, which is chaired by Prime Minister Vladimir Putin. The Russian oilers are believed to owe about $80 billion in foreign-sourced loans.

Gunvor has told Fairplay it is actively seeking finance to expand Timchenko’s stakes in the Baltic oil trades, including the new Ust-Luga terminal, rail transportation of oil, fleet operations, and independent gas exports.
(more…)

by John Helmer - Tuesday, October 14th, 2008
No Comments »