UPDATE 2 -Russia's Sberbank in talks with Rusal on debt restructuring

Fri Jan 24, 2014 7:10am EST

* Loss-making Rusal has net debt of about $10 billion

* Aluminium price has slid nearly 50 pct since 2008

* Debt to be repaid over 20-30 years if prices remain low (Adds background throughout)

By Dmitry Zhdannikov

DAVOS, Switzerland, Jan 24 (Reuters) - Russian state lender Sberbank is negotiating with loss-making aluminium group Rusal on a debt restructuring deal to help the company weather low aluminium prices, two banking sources told Reuters on Friday.

United Company Rusal, the world's biggest producer of the metal used in transport and packaging, has been hit by weak aluminium prices and its heavy net debt levels of around $10 billion.

"The model has been broadly agreed... We cannot afford the world's largest producer to fail," one of the sources said.

Rusal declined to comment. Sberbank could not be reached for immediate comment.

The price of aluminium has shed nearly 50 percent since 2008, forcing loss-making companies to slash capacity in recent years and causing some smelters to close down completely.

In 2010, Sberbank took on a loan made by the state to Rusal during the financial crisis. It is now worth around $4.6 billion and matures in September 2016.

The loan is secured against Rusal's stake in Russia's Norilsk Nickel, the world's leading miner of nickel and palladium.

"If aluminium prices remain low, the debt is to be repaid over 20-30 years; if they go up, then the cash flows will allow Rusal to redeem everything within five years," he added.

The benchmark aluminium price on the London Metal Exchange fell 13 percent in 2013 and has shed nearly 2 percent so far in January, trading at $1,765 a tonne on Friday morning.

The slide in prices forced Rusal to cut production by 325,000 tonnes in 2013 and it plans to cut a further 325,000 tonnes in 2014. In total, this amounts to a 15 percent cut from its 2012 output.

Rusal posted a recurring net loss of $132 million in the third quarter, after a recurring net loss of $208 million in the previous quarter. Recurring net profit is defined as adjusted net profit plus the company's net effective share in Russian miner Norilsk Nickel.

Rusal has a primary listing in Hong Kong and secondary listings in Paris and Moscow. (Reporting by Dmitry Zhdannikov; additional reporting by Polina Devitt in Moscow and Eric Onstad in London; editing by Elizabeth Piper and Stephen Powell)