RusAl slams latest Norilsk share buyback proposal

MMC Norilsk Nickel, a nickel and palladium mining and smelting company (Photo from http://kngc.ru)
RusAl has rejected a Norilsk Nickel Board of Directors decision to embark on a new share buyback, saying the decision is in the interests of rival shareholder, Interros, alone.

Within hours of confirmation by Norilsk Nickel that its Board of Directors had approved a new share buyback on Monday, 25% shareholder RusAl, controlled by Oleg Deripaska, issued a stinging rejection of any thought that it may sell out to Norilsk Nickel management and rival shareholder Interros, and end bitter a shareholder dispute which is now well into its third year, over control of Russia’s largest nickel producer.

In a statement the Norilsk Nickel Board said that at its Monday's meeting the sole agenda item was a new shareholder buyback, as had been proposed by Interros, general director, and Norilsk director, Sergey Barbashev, the previous week.  

It added that the Board ‘deemed the announcement of the public offer appropriate,’ and charged General Director Vladimir Strzhalkovsky with ensuring that an offer was made to RusAl, which has rejected two previous offers to buy out its stake in Norilsk Nickel, giving it ten days to consider the offer.

The RusAl response came within just hours, and was as condemnatory as previous rejections of buyout proposals over the last year.  

The decision made by the Norilsk Nickel board of directors on the feasibility of another share buyback does not serve the interests of all shareholders, but rather those of the Interros group.

The order to Norilsk Nickel's management to make another public offer to buy our RUSAL's shares before an offer to all shareholders is made, voiced at the board meeting today, serves as proof that the announced buyback was not aimed at raising Norilsk Nickel's capitalization as Interros had claimed, but is a device Interros is attempting to use to seize complete control over Norilsk Nickel and its cash flow, using the company's balance.

The latest instalment in the bitter shareholder dispute which has wracked Norilsk Nickel since mid 2008, when RusAl bought the 25% plus 2 share stake formerly belonging to Mikhail Prokhorov, follows in the wake of a previous share buyback, approved by the Norilsk Board of Directors in December 2010.  It was held up by legal action in the West Indies, preventing the Norilsk subsidiaries Corbierre and Raleigh Holdings, from completing the purchase, before further legal action freed up the subsidiaries in circumstances that RusAl said ‘needed investigation’ amidst claims of courts, dates of hearings, and judges being changed at short notice.

The dispute between RusAl, which has a 25% stake in Norilsk and Interros, which is believed to have a 30% stake, stems from disputes over strategic management direction, with RusAl claiming Norilsk was too close to Interros, controlled by Vladimir Potanin, at the expense of other minority shareholders.  RusAl has also claimed that Norilsk should be returning more money to shareholders from the sale of non core assets.  Interros has claimed that RusAl wants control of Norilsk Nickel’s cash flows to address debt issues.  In 2010 a shareholder agreement been brokered in 2008 was shattered with RusAl claiming voting irregularities at the Norilsk AGM.  RusAl subsequently lost the vote at an EGM in October where it was seeking more of its nominees on the Norilsk Board of Directors.

In late 2010 a share buyback proposed by Norilsk, and focussed at RusAl was rejected amidst claims of concern about a proposal by Norilsk Management to sell an 8% stake to Trafigura Baheer, which RusAl said had not been discussed at Norilsk Board level.    

In rejecting the latest share buyback proposal RusAl, also noted the inability of Norilsk Nickel auditors, KPMG, to audit the sale of the 8% stake to Trafigura Baheer, due to Trafigura itself not acknowledging itself to be the final beneficiary of the shares.

RUSAL is not the only company to suspect Interros of unfair dealings. KPMG auditors could not confirm the identity the beneficiary owners of the companies Delmonico Group Ltd and Crelios Investments Ltd that had allegedly bought out the quasi-reacquired package in December 2010. The company Trafigura also could not confirm that the companies were acting in its interest. Both Delmonico Group Ltd and Crelios Investments Ltd were dissolved on August 4, 2011 with the applications for their liquidation being filed on July 19, 2011. It has to be noted that the liquidations were performed by lawyers from Chrysses Demetriades & Co., a Cyprus-based company that also services 30 companies of the Interros group. We believe that the hasty dissolution of said companies, allegedly belonging to Trafigura, by Interros, was preconditioned by a desire to hide the traces of all operations pertaining to the buyback of Norilsk Nickel's shares at the start of the year as well as questions about the companies' affiliation with Interros which subsequently cause KPMG to add a qualification to its evaluation of Norilsk Nickel's financial results for 2010. All of these deals were funded by Norilsk Nickel, by money that should have been used to develop the company.