Rusal asks govt to mitigate consequences of Central Bank rate growth for its own loans - sources
MOSCOW. March 17 (Interfax) - UC Rusal has asked the Russian government to mitigate the consequences of Central Bank rate growth for loans the aluminum giant has raised from Russian banks at floating interest rates, two sources with knowledge of the situation told Interfax.
Rusal said hiking the key rate to 20% piled pressure on the company's loan portfolio due to higher interest payments. The company has two large loans linked to the key rate: a loan secured by Norilsk Nickel shares from Sberbank , of which 17.9 billion rubles remains to be paid off; and a loan up to 45 billion rubles from a syndicate of VTB and GPB for the construction of the Taishet aluminum plant.
Rusal is asking for the loans to be subject to a key rate not higher than that valid on February 24, in other words 9.5% per annum.
The company cites the risk of underutilizing Russian aluminum smelters due to the current foreign political situation. In addition to the shutdown of the Mikolayiv alumina refinery in Ukraine due to hostilities and the freeze on financial activity, there is a risk of disruption raw material supply by foreign assets, including the Aughinish alumina refinery in Ireland.
The situation is compounded by the ban on the export of goods and technology to Russia, including mining machinery and equipment. This will considerably slow the implementation of investment plans, including modernization projects and low-carbon strategy projects, meaning the company's products might become uncompetitive on world markets.
The issue of the risk of a radical increase in rates on loans already issued was raised by most companies at a Wednesday meeting at the Industry and Trade Ministry as a key risk for the sector, a source close to one of the meeting participants said, adding that the government shared that position.
"We received loans in one set of socio-economic conditions, but now they have changed dramatically. Nobody could have predicted the current situation. It is important to note that a possible increase in pressure on the loan portfolio is not the result of the wrong actions by the top management of debt management companies," the source said.
A source with knowledge of the discussion of this issue said the government instructed the Economic Development and Finance ministries and Central Bank to consider Rusal's appeal as it worked on a plan of priority measures to ensure the development of the economy amid sanctions.
The Economic Development Ministry said on Thursday that the government, following a proposal by the ministry, might introduce a 'transition' period for loans with floating interest. The rate on loans to large enterprises will gradually increase to the market level within three months, but not more than 12.5% per annum in the first month, 13.5% in the second and 16.5% in the third month.
The ministry estimates about 40% of corporate ruble loans are provided by Russian banks at a floating interest rate, but in most of these loan agreements, the Bank of Russia's key rate is used as the base rate, and that soared to 20% at the end of February.
Rusal prepaid debt last year, using dividends from Nornickel and proceeds from the sale of some of that stake in Nornickel's buyback. The company paid 88.5 billion rubles of the Sberbank loan, of which $2.1 billion and 18 billion rubles were outstanding at end-2021.
Rusal reduced its net debt to $4.1 billion from $5.6 billion as of the end of the H1 2021. Its net debt/EBITDA ratio fell to 3x, from 6.5x at the end of 2020.