Saturday, March 29, 2014

The First Russian Casualty: World’s Largest Aluminum Company, Rusal, Warns It May Default

Zero Hedge
March 28, 2014

While it is easy to blame western sanctions for the recent tribulations at the world’s largest aluminum company, Oleg Deripaska’s Rusal, the reality is that the industry specific issues plaguing aluminum makers, certainly including former Dow Jones Industrial Average member Alcoa, which involve a fair share of manipulation of physical inventories at assorted global warehouses are much more responsible than some theatrical rhetoric flaring up between the West and East in the past month.

Regardless of the cause, as FT reports, Rusal just announced it is on the verge of insolvency after it warned of “material uncertainty” about its future, and that it has asked its creditors to delay repayment on a maturity from its $10 billion debt pile due next month.
From the FT:
Rusal warned of “material uncertainty” over its future as the world’s largest aluminium producer reported a $3.2bn loss in its worst annual performance since 2008.
The Russian aluminium group, controlled by Oleg Deripaska and listed in Hong Kong, confirmed that it had asked lenders to delay a repayment due next month on part of its $10bn net debt pile.
It said that it expected to complete long-running negotiations with its banks to amend the terms of its debt, but warned that there could be no certainty it would succeed.
“Management acknowledge that these conditions result in the existence of a material uncertainty with respect to the group’s ability to continue as a going concern,” the company said. Rusal’s auditor, KPMG, included an “emphasis of matter” paragraph in its report on the company’s earnings statement to draw attention to the issue.

Any other time, a successful waiver or debt extension (at a price) would have been guaranteed, thank the unprecedented amount of liquidity sloshing around desperate to earning some, any return, but now that politicians are involved, it would not be surprising if a Steve Ratner-type figure were to make a few phone calls to Rusal’s offshore lenders, and force them to demand payment or else put the company – long a shining star of the Russian commodity landscape – in default, a move which would certainly leave a mark on Vladimir Putin’s ego, if not his bottom line. After all, Putin would certainly enjoy getting additional “equity” stakes in other domestic commodity companies in exchange for bail outs.

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