Rusal to support canceling shares in Norilsk Nickel acquired during buyback
MOSCOW. Sept 29 (Interfax) - UC Rusal will support the cancellation of shares and ADRs in MMC Norilsk Nickel , which are acquired through a buyback even though this will allow Interros to increase its stake in Norilsk Nickel above 30% without obligatory or any other offers to minority shareholders, Rusal's deputy CEO, Maxim Sokov, told journalists on Thursday.
The retirement of the shares acquired in the buyback for $4.5 billion (7.71% of charter capital) is being sought by the mining giant's majority shareholder Interros, whose head Vladimir Potanin said on Wednesday that Interros would tender its whole 30% stake in the buyback.
"We have always consistently advocated that quasi-treasury stock should be cancelled and should not vote. The fact that in this situation the cancellation will be carried out so that one shareholder passes the 30% threshold does not affect our position. We understand what is happening, but we will consistently maintain this position. Exactly in the same way as we have consistently been against the buyback, regardless of whether the offer is being made to all shareholders," Sokov said.
He reckons that Interros will sell Norilsk Nickel about half of the total amount of the buyback. "I think that in the course of the buyback Interros will sell half of its amount," Sokov said.
Based on Potanin's stated aim of consolidating 50% of Norilsk Nickel and taking into account the retirement of shares after the buyback, Rusal reckons that Interros' stake in Norilsk Nickel exceeds 30%.
"It's obvious that Interros now controls more than 30%, possibly about 32-33%. In the course of the buyback Interros will sell what exceeds 30%, and after this it will pass the 30% threshold thanks to the cancellation. This is the goal that Interros is pursuing in this situation," Sokov said.
"I really wonder how Interros can tender its whole stake, because more than half the stake is pledged. The conditions of the buyback directly prohibit the participation of pledged shares in the buyback," Sokov said.
He said that for Norilsk Nickel it would make more sense to carry out the buyback at the current market price with an accompanying cancellation, as such a format allows "nonparticipating shareholders to get their share of distributed profit through the growth of their stake in the company."
Norilsk Nickel is burdening itself with a loan in an unfavorable climate, carrying out a buyback with a huge premium that is economically illogical, according to Rusal. Following the buyback, Norilsk Nickel's shares will lose their speculative appeal and drop back to fundamental values, Sokov forecast.
"A buyback in the current situation is counter to economic logic. Norilsk Nickel is raising additional financing in a falling market in order to buy back shares with a very substantial premium. After the buyback with the large premium, after the tendering window closes, the shares will fall to the area of the fundamental valuation that they should be at," he said.
Rusal still thinks that the buyback is a veiled use of Norilsk Nickel funds to increase the stake held by Interros and management, and that it is an inefficient way to distribute profit.
"The buyback is using company money to acquire greater control in the interests of one shareholder and management. This is an ineffective form of profit distribution, it does not allow long-term investors to participate in the distribution," Sokov said.
"Taking into account the current situation, the buyback with a premium of 50% very much recalls the buyback of 2008, when Interros tried to solve liquidity problems at the expense of the company's balance sheet," Sokov said.
