28 Jan 2020 19:33

Potanin says current Nornickel shareholders agreement must be fulfilled prior to new one being discussed

MOSCOW. Jan 28 (Interfax) - The owner of Interros and the president of MMC Norilsk Nickel , Vladimir Potanin, said that he was not happy with how the current Nornickel shareholders agreement, concluded in 2013 following the end of a longstanding corporate conflict with Rusal , was being fulfilled.

"Before starting negotiations on a new agreement, it would be nice to fulfill the previous one," Potanin told Interfax on Tuesday, when asked whether there are consultations with Rusal on a new Nornickel shareholders agreement.

Potanin did not give any details.

Nornickel's biggest shareholders are Vladimir Potanin's Interros with about 34%, aluminum giant Rusal with 27.8%, and Crispian Investments, owned by Roman Abramovich and Alexander Abramov.


The first thing that comes to mind is the recent dispute over the Bystrinsky GOK IPO, said Aton analyst Andrei Lobazov. The shareholders agreement states relatively small deals involving Nornickel are for the managing partner, who is Potanin, to decide.

It emerged in January that Grigory Berezkin's ESN Group had sold its stake in the CIS Natural Resources fund, the main asset of which is a 37% stake in the Bystrinsky GOK copper-gold mining project, to Potanin's Interros. Not long before that Nornickel changed its stance on Bystrinsky GOK's future: it was decided to delay the IPO that ESN said was being readied at least until ramp-up is complete in the second half of 2020.

"As far as ESN is concerned, listing Bystrinsky is the main scenario for developing the investment in CIS Natural Resources," a source close to ESN told Interfax. "Given that the prospects and timing of an IPO are uncertain it was decided to exit the fund," the source said.

Independent directors at Nornickel and representatives of Rusal, the miner's second biggest shareholder after Interros, suggested that Nornickel keep Bystrinsky in its portfolio, Potanin said in December.

The situation with Bystrinsky could go against "not the letter but the spirit" of the shareholders agreement, said an analyst at a foreign investment bank on condition of anonymity.

"It's unlikely that anything like that was written into the Nornickel shareholders agreement," the analyst said. But it is possible the situation with the Bystrinsky IPO has caused some tension among Nornickel's shareholders if the shift in Rusal's position forced Interros to buy ESN out of their joint fund with a 37% stake in Bystrinsky, the analyst said.

But this does not mean there is no need to work on a new shareholders agreement, which ought to replace the one expiring in 2023. "Right now for Interros, when control of Rusal is in the hands of independent directors, the situation is even better than it was before. They, unlike Deripaska, have no general concepts but rather a desire to keep the status quo, especially given that Rusal's balance sheet will improve in the next few years thanks to substantial dividends from Nornickel, which could smooth Rusal's position on issues that were always acute," the analyst said.

Another analyst who also wished to remain anonymous said there were no grounds yet for relations between Interros and Rusal to escalate, despite possible differences over Bystrinsky. "The key financial agreements between Nornickel shareholders concerning dividends and the joint discussion of capex are being fulfilled. "Yes, Rusal is critical of investments in new long-term projects like Baimskoye, but has no objections to projects to develop assets from the Nornickel portfolio such as the Southern Cluster. At least not public objections," the analyst said.


Bystrinsky GOK, in which Norncikel has invested around $1.5 billion, will produce 55,000-65,000 tonnes of copper, 220,000-240,000 ounces of gold and 1,500-1,700 tonnes of iron ore concentrate in 2020.

CIS Natural Resources, which Interros and ESN used to own on an equal footing, bought its stake in the project for $275 million at the end of 2017 on the basis of a valuation of $720 million for the whole project. China's Highland Fund has previously bought 13.33% of Bystrinsky based on the same valuation. The Chinese shareholder also wanted to list Bystrinsky, but no binding agreements on the matter were signed, Nornickel has said.

Nornickel thought Roman Abramovich's Baimskoye copper-gold project might complement Bystrinsky. Rusal, which was keen for Nornickel to pay high dividends, objected to the Baimskoye acquisition - an estimated $1.8 billion would have to be invested in it. Crispian sold the project to KAZ Minerals for $900 million in August 2018.

The most recent flare-up in relations between Interros and Rusal was associated with Baismkoye. The discussion of its acquisition coincided with the expiration at the end of 2017 of the lock-up period governing Crispian's stake in Nornickel, which had initially been as high as 6.4%. In March 2018, Crispian offered to sell 4% from its stake to Interros and Rusal on a pro-rata basis. Interros accepted the offer but Rusal went to court in London over it as it considered the offer infringed upon its own interests and that its terms were related to the Baimskoye purchase and therefore disadvantageous. The court backed Rusal, and Interros and Crispian severed their deal to buy 2.1% of Nornickel.

In the period that preceded Crispian's offer and the litigation, Vladimir Potanin and Oleg Desipaska had discussed many issues regarding Nornickel's strategic development, including capex, dividends and major transactions, but had been unable to reach a consensus. After Rusal was put on the U.S. sanctions list in April 2018, Potanin did not take any action to capable of undermining his weakened partner in the shareholder agreement. But Interros and Rusal diverged again in 2019, this time over dividend policy. As the Southern Cluster investment cycle and that of other upstream projects and the sulfur ecological project drew near, Potanin wanted to peg dividends to free cash flow and not EBITDA, as the shareholder agreement required. In that case, growing capex would have affected the dividends base and Rusal rejected the idea. Capex would have peaked in 2022, the final year of the current shareholders agreement, at double the $2 billion ceiling to which the company has been committed since 2013.