The U.S. Treasury lifted sanctions against the Russian oligarch

Минфин США снял санкции с российского олигарха

The U.S. Treasury lifted sanctions on three companies of Oleg Deripaska – UC Rusal, En+ and “EvroSibEnergo”. Will it affect the aluminium market and the model of management UC Rusal, analyzes RBC.

The Department indicated that after the lifting of sanctions against these companies, restrictions of Deripaska will be saved.

The U.S. Treasury on December 19 said that the restrictions will be lifted after 30 days if Deripaska will reduce its stake in En+ group (which owns UC Rusal and EuroSibEnergo) from about 70 to 44 and 95%. The decision of the Ministry of Finance was opposed by Democrats in the Senate and in the house of representatives – the lower house of Congress. However, because the Senate did not have enough votes to bring the document to the stage of a vote, Democrats were unable to block the lifting of sanctions.

How will the lifting of sanctions on the price of aluminum?

The inclusion of the US Treasury’s second largest aluminum company the world Rusal SDN list (Specially Designated Nationals and Blocked Persons) 6 April last year inflated the price of the metal to peak in the last six years – up to $2600 per ton on the London metal exchange (LME). As in the case of interaction with the defendants in the SDN list of companies and individuals run the risk to fall under the secondary sanctions, from UC Rusal distanced many counterparties. The London metal exchange stopped trading with the Russian aluminium company. The market feared a deficit.

But Deripaska entered into negotiations with the U.S. Treasury (it was represented by the head of the Board of Directors of En+ Lord Gregory Barker), and in reliance on the agreement of the main shareholder to withdraw from the management of the company and to reduce stake in En+ group with approximately 70 to 44,95%, the Department during the year has provided companies delay the entry of the sanctions in full force. UC Rusal was partially able to continue to trade aluminium and alumina contracts and in the spot market.?The company had to preserve only a small plant in Karelia, the Nadvoitsky aluminum plant producing the metal for the United States, and reduce the production of foil-rolling plant in Armenia. Therefore, the price of aluminium has continued, and by the time of the announcement of the US readiness to lift sanctions against UC Rusal, the metal was worth less than before their introduction (up to $1905,5 t).

Evaluation of Citigroup in Europe, the warehouses can be more than 300 thousand tons of aluminium of UC Rusal. That the warehouses of the company remains unsold in April of aluminium, also said sources close to the company. The lifting of sanctions could lead to a further decline in metal prices, said the analyst of “freedom Finance” Alen Sabitov. In addition, according to him, the price effect of negative background in the metals markets because of the risks of a global economic slowdown.

If UC Rusal to return customers?

Last fall, when producers signed contracts for the next year, UC Rusal? have problems with long-term agreements on the sale of aluminium.

Freed from sanctions, UC Rusal will be able to quickly regain customers, says group Director of corporate ratings ACRA Maxim Hudalov. “Moreover, it will be a good sign for them, showing that the company can pass even through the millstones American justice”, – the expert believes.

What are the plans of the American competition UC Rusal?

American Alcoa could become one of the main beneficiaries of the sanctions against UC Rusal, said Sabitov. CFO of the American company William Oplinger in September announced plans to resume operation of its aluminum capacity in the United States, as it sees increased demand from former customers of UC Rusal.

Now Alcoa can say goodbye to their plans, says Hudalov. Especially because they practically did not increase production, and prices are now lower than in the summer of 2018 – launch capacity is already late, said the expert.

Deripaska to whom will pass control?

Under the agreement with the U.S. Treasury Deripaska? will not be able to vote for the package more than 35% of the shares in En+. More than half of the Board of Directors of the company will take the citizens of the US and the UK. The right to vote unable to Americans David Noer, David crane, and D. J. Baker. Neuer is the Executive Director of private equity Fund Cerberus Capital Management, Crain – senior operating Manager Pegasus Capital Advisors, a corporate lawyer Baker was previously head of corporate reorganization law office Latham & Watkins.

25% stake in En+, which will leave Deripaska, will receive VTB Bank or other party that is not in the sanctions list of SDN, which will approve the Office of foreign assets control of the U.S. Treasury (OFAC).

Deripaska will be able to appoint only four of the 12 Directors of En+. The Board of Directors of UC Rusal, consisting of 14 people, form En+, with most (eight) will consist of independent Directors not affiliated with Deripaska, or other person from the SDN list. The remaining six people can be familiar with it only as employees En+ or UC Rusal. Deripaska himself will not be able to nominate a single representative to the Board of Directors of the aluminum company, which he founded and headed until February 2018.