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By John Helmer in Moscow

Scoop! Rabbit overtaken by tortoise.

The news that Oleg Deripaska – zaitschik, “rabbit”, as he was known when younger – has been overtaken, and overturned, by JP Morgan Cazenove and Goldman Sachs, was front-page on Friday. In a carefully worded despatch, the Financial Times claimed the world’s largest aluminium industry share flotation, and the London Stock Exchange’s biggest new listing for this year, had not failed, so much as been put “on hold because of market conditions”. A prospectus for the Rusal share issue was purportedly drafted a month ago, but it had not been filed with the UK Listing Authority, the market regulator, so Rusal “could monitor market conditions”. A meeting of the Rusal board of directors, on Wednesday September 19, had decided not to proceed with the share sale “because of market turmoil and liqudity worries.”

The FT version mentioned the possibility that Deripaska and his company were struggling “to bring its corporation governance and accounting up to the standards required by London fund managers”; and that there were legal challenges to Rusal, “including filings from Mikhail Cherney, a founding father of Russia’s aluminium industry, who has claimed a 20 percent stake in company”

This said more than at least one of the Rusal shareholders wanted to concede in public. And so, a day later, on September 22, a London Times reporter issued Victor Vekselberg’s version of what has happened. Deripaska controls 66% of Rusal; Vekselberg 22%; and Glencore 12%.

When Deripaska and Vekselberg agreed last October on the merger of Russian Aluminium (Rusal), Deripaska’s company, with Vekselberg’s SUAL, the two men also promised that within 36 months of closing, a public share sale would be held, allowing one or both to sell his shares. There is a penalty catch in that agreement – if Deripaska delays the IPO, he will be personally liable to pay Vekselberg a heavy premium. Thus, the IPO scheme is intended to be significantly cheaper for Deripaska – at least with respect to his obligations to Vekselberg. His obligation to Cherney – last reported in Mineweb at here.

— also makes the IPO a relatively lower cost option for Deripaska to meet.

Bankers advising the two have since told Mineweb that Deripaska has not intended to sell his shares into the planned IPO; and that if and when a 25% placement is made, most of the shares would come from Vekselberg.

According to Vekselberg in the Times, there had been a meeting in Moscow on Thursday last, September 20, when it was decided the Rusal IPO “will definitely not happen before year-end. The reason is obvious. All companies are reviewing timings of their flotations. The market is very volatile and to take the risk without being sure the IPO will be successful does not make sense.”

The Times was obliged to acknowledge sentiment in the London market: “there was also speculation in London yesterday that Rusal decided to pull its November IPO after early indications suggested that it would receive only a lukewarm reception from investors even if the market were stable.”

The Moscow investment banks and brokerages have pulled a blanket of silence over what has happened. Except for MDM Bank, which claims that Rusal “does not have a pressing need to raise capital.” Without audited financials, Rusal has told analysts it is carrying total debt of $7.8 billion. Year-end Ebitda, Rusal says, will be $6.2 billion.

Rusal’s spokesman, Vera Kurochkina, and the company’s London PR agents, have remained uncommunicative. A single sentence quoted by the FT, but not posted on the company website, claims everything is on track. “There is no change to the plans we have announced for an IPO to take place within three years of the merger deal closing.” As the ancient fable warned, when racing against tortoises, over-confident rabbits always believe there is plenty of time.

The FT version appears to have come from JP Morgan, one of the bank syndicate which has been slowly conducting the preparations for a main board listing this November. That deadline was publicly announced by Vekselberg early in the year, and then publicly endorsed by Deripaska.

The public versions of what has happened are not those of the insiders. There are also recriminations between them, since the syndicate has been torn by a conflict between JP Morgan and Morgan Stanley over whether to place Rusal as a full LSE-listed share, with high disclosure requirements; or as a General Depositary Receipt (GDR), with fewer obligations to shareholders.

According to several versions of the board’s decision to withdraw the placement for this year, Deripaska and Vekselberg had agreed on a main-board listing, following the JP Morgan recommendation; they had disagreed with Morgan Stanley, advocate of the GDR route.

But Deripaska’s reason for this has been his confidence that he would receive US Government endorsement, in the form of the re-issue of a US entry visa. That visa, denied by the US authorities for almost a decade, was granted in 2005, and then revoked in 2006. Magna International, a Canadian auto-parts producer which is selling a stake to Deripaska, publicly recorded the revocation in a US regulatory filing in August, and in an advisory to Magna shareholders. Mineweb and the Wall Street Journal had reported the US action earlier.

Goldman Sachs has been promising to deliver Deripaska’s new visa. Its appointment to the IPO syndicate, and also the naming of an ex-US ambassador, Philip Lader, as a director on the Rusal board, had both been made by Deripaska with the understanding that they would deliver his visa – and in Deripaska’s view, vindication over allegations of unlawful conduct in accumulating his assets, and laundering the proceeds. A Harvard professor of government, Graham Allison, was also recruited to Rusal’s “international advisory board”, with the same purpose. Allison has refused to talk about it.

The visa, reported by Mineweb more than a month ago, has failed to materialize, so far. Worse, as one of the London banks acknowledged to Mineweb on Friday, German prosecutors in Stuttgart have opened money laundering indictments in the city court against two men, whom the prosecutors link to Deripaska. The first hearings in the case have been scheduled for October 16. The first public report of this proceeding appeared in Der Spiegel early this month. The German prosecutors are confirmed as making contact with a range of witnesses and others with evidence against Deripaska. One of the Rusal bankers in London told Mineweb he was aware of the German case. The questions raised, the source added, “have to be answered. There are lots of problems with this company. Otherwise, it would be listing.”

The UK High Court litigation by Cherney is about to move into high gear, lawyers say. But the IPO bankers have claimed this is Deripaska’s problem, not Rusal’s. They say the same thing about the new Stuttgart case, and about the charges of fraud and corruption, alleged in a court filing by the Tajikistan government and the Tajikistan Aluminium Plant (Talco) in a pending case in the British Virgin Islands.

Although Deripaska himself has insisted on his innocence, and vindication for himself, the IPO advisors have urged him to stay away from the Rusal marketing campaign. This has been led by Alexander Bulygin, Rusal’s chief executive. But Bulygin isn’t exactly Deripaska’s protégé.

His career began when he was introduced to Cherney by Deripaska, and approved by the latter to run the day-to-day operations of the company. A source, who used to work for Bulygin, told Mineweb that “Misha always respected Sasha.” Bulygin was also the beneficiary of an agreement between Cherney and Deripaska, assigning about 5% of their original (and joint) shareholding in Rusal to the company’s management. Most of that went to Bulygin and finance boss, Gulzhan Moldazhanova. Bulygin reported regularly to Cherney until a year after the Deripaska-Cherney agreement of 2001, one of the key documents in evidence in Cherney’s High Court action.

“Bulygin is trying to convince the banks he is independent of Oleg Deripaska”, a source involved in the London negotiations says. One of the bankers responds that for the IPO, there must be a non-interference agreement, signed for the incoming shareholders by Deripaska and Vekselberg. “Bulygin needs that safety net, but he is totally dependent on Deripaska,” one of the negotiators said. The banker concedes that, to date, no non-interference agreement has been signed.

Proposed board chairman, Simon Thompson – who resigned from Anglo American early in the year – still needs time to “get acquainted” with the controlling shareholders, before he will agree to serve.

The rabbit isn’t without his barrackers, on the sidelines. A metals analyst in London told Mineweb: ”the simple reason [for the IPO delay] is market conditions. The multiples they thought they were going to get are no longer attainable. It took a while for the numbers to dampen their arrogance. They really believed that they would get a premium to the major global peers Alcoa and Alcan. That has fallen away, as has sentiment towards aluminum. Oleg is relaxed about Russia but also prefers the private platform. Of course, there are other theories for postponing the IPO regarding corporate action on which I am not going to speculate as there is enough of that already going around.”

The tortoise has his backers, also. “The banks simply couldn’t separate the man from the business; weren’t confident of where the assets really were; were nervous about back tax issues. Rusal did nothing to dispel these concerns. One bank pulled out, and then the syndicate fell apart.”

One of the insiders told Mineweb this is “bollocks”. According to this version, the accountants working on the IPO were prepared to sign off on a statement that Rusal has paid all its tax. This is not quite the same thing as saying that Deripaska’s group would not be liable to heavy back-tax claims relating to transfer pricing and tolling violations. As Deripaska operated the old Rusal, Rusal was a shell, without title to the alumina that was freighted into the smelters, nor the aluminium freighted out, then exported through a string of allegedly unconnected companies with trading rights.

Deripaska’s standing with the new head of the Russian government, Victor Zubkov – appointed the day the Rusal board reportedly gave up on the IPO for this year – is unclear, and so is his liability for claims the new Russian president, possibly Zubkov or former defence minister Sergei Ivanov, may raise. As the former head of the government unit pursuing money laundering and tax violations, Zubkov is in a position to know more about the Rusal case than any of his predecessors. The London bankers have told Mineweb that some form of assurance to investors against crippling tax claims and renationalization is required for the IPO. They concede they don’t have it, yet.

Those who believe Deripaska hasn’t wanted the IPO, in order to preserve instead the private status of Rusal, believe he may now concentrate on amassing enough cash to settle the claims against him. The tortoise may have passed the rabbit last week, but the latter isn’t resting. His next move depends on what happens in the courts of London – and Stuttgart.

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