Minority shareholders of Rusal threaten to block the additional issue

Oleg Deripaska's UC Rusal may face a conflict around shares: according to Bloomberg, the company intends to issue new shares and place 20% of shares on the stock exchange in London. But minority shareholders, including Viktor Vekselberg, Mikhail Prokhorov and Glencore, are threatening to block it.
Origin source
Minority shareholders are against

Large minority shareholders of UC Rusal are threatening to block the additional issue and placement of 20% of the company's shares on the London Stock Exchange, if this issue will be submitted to the Board of Directors. This was said to RBC by two sources close to the shareholders of the aluminum company.

One of the interlocutors of RBC generally questioned the idea of placing 20% of the company's shares on the London Stock Exchange, which on Thursday, February 9 sources told Bloomberg and Reuters. He said it was false news. According to Bloomberg data sources, UC Rusal plans to issue new shares and to place 20% of the new company's shares on the London Stock Exchange. But the investors will not necessarily be offered the new shares; the shares can be sold by the existing shareholders of the aluminum company, sources told Reuters.

To address this issue would not require to convene a shareholders' meeting, the approval of UC Rusal board of directors is enough, continues Reuters. But the board has not yet reviewed the deal, notice the interlocutors of Reuters and Bloomberg. This was confirmed to RBC by a source close to the Board of Directors of UC Rusal.

After the news about a possible additional share issue and placement of the new shares on the London Stock Exchange, UC Rusal shares fell slightly: as a result of trading on the Hong Kong Stock Exchange on Thursday, February 9, they dropped by 0.7%. 20 percent UC Rusal package on the stock exchange was worth $1.67 billion.

The main shareholders of UC Rusal are En + owned by Oleg Deripaska (48.13%), ONEXIM belonging to Mikhail Prokhorov (17,02%), Sual Partners of Viktor Vekselberg and Leonard Blavatnik (15.8%) and the Swiss Glencore (8,75%). The remaining shares, about 10%, are traded on the Hong Kong and Moscow stock exchanges and NYSE Euronext.

In total the UC Rusal's board of directors has 18 persons, including eight seats for En +, headed by its owner Oleg Deripaska, who is also president of the aluminum company. Large minorities' representation in the board is 50% less: from Sual Partners there are two persons, ONEXIM and Glencore have one each. The remaining six seats are occupied by independent directors, including the Chairman of the Board Matthias Warnig.

"We have a single veto," told RBC a source close to one of UC Rusal shareholders, commenting on the possibility to block an additional issue. As follows from the prospectus of UC Rusal dated 2009 prepared in anticipation of an IPO on the Hong Kong Stock Exchange, the main shareholders of the company (En +, Onexim, Sual Partners and Glencore) agreed that each of them would have the right of veto on any important decisions, including the issuance of new shares, that is an additional issue. Also, the agreement provides that in the case of accommodation for more than 1% UC Rusal share capital of the four main shareholders are entitled to participate in such a transaction as sellers: they can sell their shares in proportion to ownership.

Representatives of En +, Onexim, Sual Partners and Glencore declined to comment. UC Rusal representative on Thursday, February 9 did not respond to calls from RBC.

Rusal is looking for money

UC Rusal has recently placed its debut Eurobonds for $600 million and soon plans to soon issue bonds in RMB on the Shanghai Stock Exchange (the size is not disclosed, the entire program is designed to release $1.5 billion).

Additional emission or strenghtening of Vekselberg

If UC Rusal has an additional issue and sells 20% of the new shares on the London stock exchange, the share of Deripaska's En + will decrease from 48.13% to 40.1%, while the combined share of the three largest minority shareholders will be below 35% (now it is almost 42%), estimates analyst of BCS Oleg Petropavlovsky:  Prokhorov's ONEXIM will have 14.2%, while Sual Partners belonging to Vekselberg and Blavatnik and Glencore will have 13.2 and 7.3%, respectively. "It is possible that due to the discontent of shareholders with the possible blurring of their shares in the company during the additional issue. In order to reach an agreement with the minority shareholders, UC Rusal and its main shareholder (En +) has to offer them favorable terms: for example, a preferential price for new shares or other rights in the shareholders' agreement," said partner of the law firm Nektorov, Saveliev & Partners (NSP) Alexander Nektorov.

One of the major shareholders of UC Rusal, ONEXIM, since the summer of 2016 has been looking for a buyer for part of its stake in the company:12% from 17.02%. In the case of completion of the transaction the group would retain 5% of UC Rusal and the rights spelled out in the shareholders' agreement, including a seat in the board. First the package was claimed by businessman Suleiman Kerimov, and then Sual Partners belonging to Vekselberg and Blavatnik entered the negotiations. The partners agreed on the approximate price of 12%, and, as Vekselberg said, the transaction was to be completed before the end of 2016.

On Monday, 6 February, it became known that negotiations between Onexim and Sual Partners on the sale of shares in UC Rusal delayed. This was reported by Vedomosti"newspaper and confirmed by two RBC sources close to both sides of the negotiations. According to them, the large debt of UC Rusal, the Hong Kong legislation and a number of other factors became a hindrance. In addition, the capitalization of UC Rusal has grown since the summer of 2016: in October, the parties discussed the package price of $700 million, and now it costs more than $1 billion.

The main owner and president of UC Rusal Oleg Deripaska has closely followed the negotiations between Prokhorov and Vekselberg and feared that their follow-up impact Sual Partners in the company will increase significantly, because its package would have risen from 15.8 to 27.8%, which would make the joint venture of Vekselberg and Blavatnik the second largest shareholder of UC Rusal after En + (48,13%). This was in December 2016, RBC was told be a source close to En +. The representative of En + on Thursday, February 9 did not comment on it.