April 27, 2018 / 8:52 AM / 4 months ago

Exclusive: Rusal seeks sanctions relief via board changes, exports at risk if plan fails - sources

MOSCOW/LONDON (Reuters) - Russian metals giant Rusal (0486.HK) will overhaul its board and management in hopes of persuading the United States to lift sanctions but it may be forced to halt aluminium exports for good if the plan fails, sources close to the company said.

FILE PHOTO: Aluminium ingots are seen stored at the foundry shop of the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk, Russia November 9, 2017. REUTERS/Ilya Naymushin/File Photo

Washington this month imposed sanctions on billionaire Oleg Deripaska and several companies in which he is a large shareholder, including Rusal, in response to what the United States called Russia’s “malign activities.”

Two sources familiar with the matter told Reuters on Friday that Rusal would soon appoint a fully independent board that in turn would install a new management team in the hope that the United States would remove the firm from its sanctions list.

“Rusal is in touch with U.S. authorities and hopes the measure will be enough for them to be removed from the sanctions list,” one of the sources said.

Rusal declined to comment.

In another response to the U.S. sanctions, Deripaska’s En+ Group (ENPLq.L), which manages his hydropower assets and holds his 48 percent stake in Rusal, said late on Friday that Deripaska had agreed in principle to reduce his stake in En+ to less than 50 percent from the current 65 percent.

In Washington, a U.S. Treasury spokesperson said changes in ownership at Rusal do not guarantee the end of sanctions.

“A reduction in the percentage of ownership by a sanctioned individual is not necessarily in and of itself a basis for de-listing,” the spokesperson added.

Deripaska also agreed to resign from En+’s board, which will have a majority of new independent directors.

The United States said on Monday it would consider lifting sanctions on Rusal if Deripaska ceded control of the company.

It was not immediately clear if the steps announced by En+ on Friday and those the sources said were planned by Rusal would be enough for the U.S. sanctions to be lifted.

En+ also said that it had asked the United States to extend the May 7 deadline it has given banks to divest or transfer debt, equity, or other holdings in the company.

Without the extension, En+’s ability to maintain its listing on the London Stock Exchange will be affected, it said.

By adding Deripaska’s businesses to its Specially Designated Nationals blacklist – the first time Washington had done so with a publicly listed Russian firm - the United States effectively choked off their access to the international financial system.

Rusal, the largest part of Deripaska’s empire and the world’s biggest aluminium producer outside China, has seen customers stop buying its aluminium and creditors scramble to offload debt.

Hong Kong-listed Rusal lost almost 60 percent of its share value after the imposition of sanctions, while aluminium and alumina prices soared, hitting businesses around the world, including in the United States.

Earlier this week, the United States moved to ease some of the measures against Rusal, saying it did not want to hit “the hardworking people who depend on Rusal”.

EXPORT THREAT

The changes in the board of directors and management team are being discussed with other shareholders, another source familiar with the situation said. Rusal’s other shareholder, Viktor Vekselberg, was also put on the sanctions list.

However, if this option does not work out, Rusal will be forced to focus exclusively on the domestic market and sell part of its production to a state stockpile, the source said.

“Up to 2 million tonnes will be processed internally and meet the needs of the military-industrial complex,” the source said.

“In this case, Rusal would leave the global market, and of course no one wants this to happen,” the source added.

Rusal declined to comment.

In a sign of escalating supply crisis, sources told Reuters multiple shipments of alumina were being exported from China in a rare move prompted by sanctions on Rusal.

China is the biggest global producer and consumer of alumina, a compound extracted from bauxite ore that is smelted into aluminium metal.

The sanctions against Rusal have up-ended the supply chain as companies cut contracts to use Rusal metal, leaving producers of cans or auto parts scrambling for supplies in a development that will likely feed into higher costs for buyers of goods ranging from tractors to beer.

According to the first source close to Rusal, the company is not shipping aluminium to customers around the world who are now awaiting guidance from U.S. authorities.

“Rusal needs clarity from OFAC before it can resume those shipments,” the source said, referring to the Office of Foreign Assets Control of the U.S. Treasury, which enforces economic and trade sanctions based on U.S. foreign policy and national security goals.

Aluminium prices in London CMAL3 fell on the news of the potential board reshuffle but then recovered on fears exports could remain disrupted.

Reporting by Polina Devitt and Dmitry Zhdannikov; Additional reporting by Chris Sanders in Washington; Editing by Dale Hudson, Jason Neely, Adrian Croft and David Gregorio

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