19 JUNE 2013Businessinsider.com
Rusal's monopoly deemed worthless
Edited by : AL CIRCLE
2 min read
Russia’s aluminium monopoly Rusal, with its hidden Kremlin shareholders, has slipped below the worthlessness level on the Hong Kong Exchange – that is, its market cap is now less than the value of the 28% shareholding it owns in Russia’s largest mining company, Norilsk Nickel.
The aluminium assets no longer support the market valuation; the aluminium operations would be loss-making if not for payment of Norilsk Nickel dividends, which are in turn being inflated above the profit line by borrowing from Russia’s state banks.
Rusal’s share price collapsed through the four-dollar threshold on Monday, as the release of results at Friday’s Annual General Meeting (AGM) of Rusal shareholders revealed that the company is planning to use its shrinking cash reserves to try to prop up its share price.
In a dramatic warning issued in Moscow at the same time, Otkritie Capital warned current shareholders to sell. Rusal, according to Otkritie, is now “too illiquid and expensive to short given the lack of real catalysts, but we would avoid the stock on valuation grounds.”
According to a release to the Hong Kong Exchange today, Rusal’s controlling shareholders ran into significant opposition when they proposed two resolutions allowing the board to direct, and the company to pay for new share issues and repurchase of existing ones. Twenty-five percent of Rusal’s shareholders voted against the new issue authority, and 24% against the buy-back.
In April Citibank, one of Rusal’s syndicate of international lenders, predicted a decline of Rusal’s market capitalization to the equivalent of $3.5 billion. That represents the loss of five-sixths of the market capitalization which Putin ordered the state banks to support at Rusal’s initial public offering in January of 2010.
In effect, the banks are saying Rusal is already worthless. According to Otkritie analyst Andy Jones, Rusal’s real market value is zero, because its $6.74 billion capitalization on the Hong Kong exchange is entirely accounted for by Rusal’s 27.8% stake in Norilsk Nickel; at today’s price that is worth $6.92 billion. If Rusal hits Citi’s price target, its market capitalization would be half the value of its Norilsk Nickel shareholding.
The aluminium assets no longer support the market valuation; the aluminium operations would be loss-making if not for payment of Norilsk Nickel dividends, which are in turn being inflated above the profit line by borrowing from Russia’s state banks.
Rusal’s share price collapsed through the four-dollar threshold on Monday, as the release of results at Friday’s Annual General Meeting (AGM) of Rusal shareholders revealed that the company is planning to use its shrinking cash reserves to try to prop up its share price.
In a dramatic warning issued in Moscow at the same time, Otkritie Capital warned current shareholders to sell. Rusal, according to Otkritie, is now “too illiquid and expensive to short given the lack of real catalysts, but we would avoid the stock on valuation grounds.”
According to a release to the Hong Kong Exchange today, Rusal’s controlling shareholders ran into significant opposition when they proposed two resolutions allowing the board to direct, and the company to pay for new share issues and repurchase of existing ones. Twenty-five percent of Rusal’s shareholders voted against the new issue authority, and 24% against the buy-back.
In April Citibank, one of Rusal’s syndicate of international lenders, predicted a decline of Rusal’s market capitalization to the equivalent of $3.5 billion. That represents the loss of five-sixths of the market capitalization which Putin ordered the state banks to support at Rusal’s initial public offering in January of 2010.
In effect, the banks are saying Rusal is already worthless. According to Otkritie analyst Andy Jones, Rusal’s real market value is zero, because its $6.74 billion capitalization on the Hong Kong exchange is entirely accounted for by Rusal’s 27.8% stake in Norilsk Nickel; at today’s price that is worth $6.92 billion. If Rusal hits Citi’s price target, its market capitalization would be half the value of its Norilsk Nickel shareholding.
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