Russia's Metals Tycoons Plan for Giant Merger

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The MSCI BRIC Stock Index fell 60% last year. While all four BRIC countries were hit hard, Russia's stock market was the world's worst performer, with a 74% plunge. China was down 52%, India fell 65%, and Brazil shed 58%.

The decision suggests the Kremlin for now is following through in its rhetoric opposing broad nationalization as a response to the economic crisis. The move leaves the industrialists looking for other ways to reduce debt burdens. Among them is one of Russia's richest men, Oleg Deripaska, the CEO and main shareholder of aluminum giant UC Rusal.

Government officials were cool to the executives' offers to swap billions in debt they owe to state banks for a minority stake in a merged company, say the people familiar with the talks. The executives, meanwhile, couldn't agree on how to value their holdings for any deal.

"Unfortunately, there's a widespread feeling in business -- and in the state, for that matter -- that one should take advantage of the situation to take something from somebody," Kremlin economic adviser Arkady Dvorkovich told a business forum in Siberia on Friday. "We want both government and business not to act to the detriment of their neighbors."

The decision came at a meeting late Thursday between President Dmitry Medvedev, Mr. Deripaska and Vladimir Potanin, the main shareholder of OAO Norilsk Nickel. The men, together with Norilsk's CEO, discussed other steps to support the metals sector, including possible government purchases of nickel and other products. A major employer, the Russian metals industry has been hit by plunging demand and prices globally. Heavy borrowing before the crisis by many of the companies' owners has made the situation worse.

Mr. Deripaska's Rusal is one of the most heavily indebted, with obligations of more than $15 billion. Rusal is in talks with Western lenders to restructure about $7.5 billion of that total, seeking to stretch payments out over as much as five years and peg them to aluminum prices. Mr. Deripaska said last weekend that he hopes to reach a deal in early March on suspending payments, followed a few months later by a full restructuring.

Rusal also has to renegotiate terms of about $7 billion in debt to Russian state-owned banks, including a $4.5 billion bailout loan that comes due in the fall. Mr. Deripaska has said Rusal doesn't need government financial help. Facing falling revenues and the likelihood the crisis will be prolonged, government officials have recently shifted from pledging bailouts to telling businessmen they are on their own.


WSJ