Norilsk Nickel to buyback through subsidary

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The board of directors of MMC Norilsk Nickel at a Wednesday extraordinary meeting has voted for the Norilsk Nickel Investments Ltd to buyback MMC shares and ADR from shareholders, the company said in a statement.

­The preliminary voting among the board of directors at Norilsk Nickel took place on September 13, proposing MMC Norilsk Nickel subsidiary to carry out the buyback of 14,705,882 ordinary shares, representing 7.71% of company charter capital at $306 per share and $30.6 per ADR.

The decision was approved by the majority of the shareholders with the timing of the buyback to be negotiated later.    

The buyback program could cost Norilsk Nickel as much as $4.5 billion, with half of the transaction financed through convertible bonds issues. Vladimir Strzhalkovsky, Head of MMC Norilsk Nickel, said earlier that the buyback might begin late September or early October

Norilsk Nickel had intended to retire the shares acquired in the buyback. The need for a subsidiary to carry out the buyback is attributable to specifics of the Russian legislation, noted Maksim Lobada, expert at BCS.

“Russian law does not allow the company itself to buy back ADR. If the buyback is carried out by a Norilsk Nickel subsidiary registered abroad, the shares could not be retired directly, but would need to be transferred to the balance sheet of the parent company. If Norilsk Nickel group companies registered abroad acquire 10% of the mining giant, the deal might require the approval of the government commission for oversight of foreign investment.”

Along with the announcement of the buyback of shares, Rusal shareholder Vikotor Vekselberg unveiled his plans to initiate a 25.13% Rusal stake offer in Norilsk Nickel for $18 billion.  

Natalia Sheveleva, analyst at Gazprombank, says the offer comes with a high premium to the current market price and previous offer.

“Norilsk Nickel’s current capitalization is $42.12 billion, which is $221 per share. At this point, the stake owned by Rusal is valued at $10.53 billion. The $18-billion offer presumes 71% premium to the market price. The past MMC offer for the [businessman Oleg] Derepaska stake was calculated out of $306 per share, totaling $14.66 billion for the entire Rusal stake, which was a 23% premium.”