Rusal's $43 Billion 7-Year Glencore Deal Feeds Investor Feud

United Co. Rusal, the world's biggest aluminum supplier, is locked in to selling $43 billion of the metal to Glencore International Plc over seven years in a contract that's fueling a feud among billionaire investors, four people familiar with the accord said.

Glencore agreed to the deal in the fourth quarter as premiums paid by buyers reached near-record highs, according to the people, who declined to be identified as the terms aren't public. Buyers in Europe paid an average $130 a metric ton more than the London Metal Exchange price in the final three months of 2011. Rusal will sell about 1.4 million tons this year as part of the accord, the people said.

Investor Victor Vekselberg's Sual Partners Ltd. is seeking arbitration, saying the contract, which accounts for a third of Rusal's annual output, breached a shareholder agreement. The deal turns the aluminum company into "Glencore's production unit," Sual told Bloomberg News last week. The spat has stoked a dispute over strategy, centered on owner Oleg Deripaska's refusal to give up nickel holdings to pay down debt, leading Vekselberg to quit as chairman in March saying Rusal faced a "deep crisis."

Rusal will sell about 14.5 million tons to Glencore over the duration of the agreement, which will protect the company against future price declines, the people said. Glencore pays the LME price plus a fixed premium, and can resell the metal or stockpile it in anticipation of higher prices.

Higher Premium

Spokesmen for Glencore and Rusal declined to comment on the details of the contract.

Rusal and Glencore, which holds about 8.75 percent of the aluminum producer, struck the agreement when premiums were near "multi-decade highs," Jorge Vazquez, managing director of the Harbor Aluminum Intelligence Unit, said by e-mail. Premiums are currently about $140 a ton. That compares with $83 at the start of 2010, according to a Rusal presentation in March.

The contract will give Rusal "stable" cash flow to service its debt and finance working capital, said Kirill Chuyko, an analyst at UBS AG. Net debt totaled $11.05 billion as of Dec. 31.

The accord also helps Glencore, the biggest publicly traded commodities supplier, to increase its influence in the market, Vladimir Zhukov, HSBC Holdings Plc's head of research in Moscow, said by telephone.

"Glencore will increase its market power, which should help to reduce price volatility and could be positive for the market balance via inventory management," Zhukov said.

Netherlands Warehouses

Glencore holds aluminum at warehouses in Vlissingen in the Netherlands, which has the second-largest stockpiles globally after Detroit, according to data compiled by Bloomberg.

Glencore accounted for about 45 percent of Rusal's aluminum sales in 2010, the Russian company said in its annual report. The Baar, Switzerland-based trader sold 3.9 million tons of aluminum in 2010, 9 percent of total world production, Glencore said in a prospectus for its 2011 initial public offering.

Rusal, based in Moscow, also awarded Glencore a contract to sell its alumina through to 2019, raising the value of the companies' agreement to about $47 billion, the people said.

The accords prompted Vekselberg's Sual Partners, a 15.8 percent stockholder in Rusal, to file for arbitration in London on April 4. Vekselberg claims Deripaska's En+ Group, Rusal's biggest holder, and Glencore breached a 2007 shareholder agreement that stipulated that a veto from just one of the four major holders should block any deal.