October 3, 2008 / 8:24 AM / 11 years ago

UPDATE 3-Deripaska says crisis forces Magna stake divestment

(Adds Basic Element statement on debt in para 7)

By Dmitry Zhdannikov

MOSCOW, Oct 3 (Reuters) - Billionaire Oleg Deripaska has divested his 20 percent stake in Canadian auto parts maker Magna MGa.TO as the global financial crisis deals its first major blow to the business empire of Russia’s richest man.

Deripaska said on Friday he had returned the stake to the creditors that helped fund the $1.4 billion deal a year ago. The sale follows weeks of speculation that parts of his heavily indebted business are struggling to find money in the current liquidity squeeze, amid the worst stock market plunge in a decade.

His main investment vehicle, Basic Element, and its various units have denied any problems after media reports that its banking division is battling to find liquidity and its aluminium unit is in tough talks with lenders on the terms of a $4.5 billion loan.

Deripaska’s interest in Magna, held through Russian Machines, the auto division of Basic Element, was among his biggest overseas investments and the tycoon was counting on its support to help modernise Russia’s outdated car industry, now emerging as Europe’s largest market. Basic Element said in a statement it had decided to terminate its participation as a shareholder in Magna due to the current global financial crisis. It agreed in September 2007 to buy one-fifth of Magna, which is run by Canadian tycoon Frank Stronach.

Deripaska, valued by Forbes at $28.6 billion, has repeatedly argued that this valuation of his empire is incorrect because it does not include the large debts assumed by Basic Element as it amassed assets from aluminium and oil to construction and food.

On Friday, Basic Element said that, despite the Magna stake divestment, it considers its debt and liquidity positions acceptable and hoped to keep other investments made over the past year while working on optimising its debt portfolio.


Basic Element’s investment in Magna was jeopardised as the $1.4 billion stake pledged as collateral to lenders fell in value to $1.1 billion, giving lenders the right to demand either more shares as collateral or a cash commitment.

Basic Element’s statement did not disclose the creditors involved. At the time of the deal, it said one of its units borrowed $877 million from French bank BNP Paribas (BNPP.PA), with an option to increase the funding to $1.23 billion.

Russian media have reported that other parts of the company’s business face similar problems, as Russian stocks have tumbled more than 50 percent from their May peaks after war in Georgia and amid investor flight from emerging markets.

United Company RUSAL, the world aluminium leader majority owned by Deripaska, is estimated alone to be $14 billion in debt after it borrowed $4.5 billion from Western banks to fund the purchase of a one-quarter stake in Norilsk Nickel (GMKN.MM), the world’s largest nickel and palladium miner.

Vedomosti business daily reported last month that UC RUSAL had to renegotiate the terms of this loan and pledge more Norilsk shares as collateral after the nickel miner’s stock tumbled in tandem with the Russian market.

“We don’t have any problems related to loans that we took to buy the stake in Norilsk,” UC RUSAL spokeswoman Vera Kurochkina said on Friday.

BrokerCreditService analyst Sevastian Kozitsin said Basic Element was simply prioritising its varied assets.

“The company is simply getting rid of the least important assets and we see that it is focusing on the most important divisions,” he said.

Basic Element said its cooperation with Magna to develop an auto components business in Russia would continue. Russian Machines controls the country’s second-largest car producer, Gaz (GAZA.RTS).

Russia is one of the world’s fastest-growing car markets. Russian media have reported Magna plans to build a $500 million plant in Russia to assemble around 150,000 Chrysler vehicles a year.

Magna was Basic Element’s second-largest overseas investment after its 1.2 billion euro ($1.66 billion) purchase of a 25 percent holding in Austrian construction firm Strabag (STRV.VI).

Strabag said on Friday Deripaska had told its management he would keep this stake. (Reporting by Dmitry Zhdannikov; Editing by Simon Jessop and Jon Loades-Carter)

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