AUGHINISH ALUMINA, the alumina refinery located on the Shannon estuary, is valued at over $1.2 billion by its Russian parent in documents prepared for a flotation on the Hong Kong stockmarket.
AC Rusal, the world’s largest aluminium producer, is controlled by Russian businessman Oleg Deripaska. He plans to raise up to $2.6 billion in a landmark Hong Kong IPO next month and is betting on aluminium price growth to repay nearly $15 billion in debt and restore profits after a poor first half of 2009.
The prospectus for the flotation puts a value of $1.226 billion, based on cash flows, on the Limerick operation, making it the most valuable of the group’s 14 aluminium smelters and alumina refineries.
Alumina is the raw material from which aluminium is made; it is produced by refining bauxite ore.
The total value of the group’s smelters and refineries is put at $4.8 billion in the prospectus.
The only other assets of comparable value to Aughinish is the companies refinery and smelter complex in the Ural mountains of Russia. It is valued at $1.211 billion.
The prospectus details Rusal’s finances for the first time since its creation in March 2007 through the merger of Mr Deripaska’s Rusal with SUAL and Glencore, the owner of Aughinish.
UC Rusal is offering 1.6 billion shares, or a stake of about 10 per cent, in a range of HK$9.10 to HK$12.50.
The listing, set for January 27th, will be among the first major IPOs of a non-Asian firm in Hong Kong and the first Hong Kong-Paris dual listing.
The company spent most of last year in talks with creditors to secure Russia’s biggest restructuring deal, clearing the way for it to go public. Pricing at the top of the range would raise $2.58 billion, and at the bottom, $1.87 billion.
“A valuation closer to $1.5 billion for that stake had been considered by many potential investors as more appropriate,” said Chris Weafer, chief strategist at Russian investment bank UralSib.
The offer price values UC Rusal at 11 to 14 times 2010 basis EV/EBITDA and means the company values itself at upto $26 billion.
The IPO has attracted a list of big-name investors, including Nathaniel Rothschild’s company and US hedge fund Paulson Co, but has not been without hiccups.
It was delayed by Hong Kong authorities due to caution over Rusal’s massive debt burden and approval was granted with an unprecedented proviso barring the sale of shares to Hong Kong’s retail market, a hungry group of individual investors usually allowed at least 10 per cent of an IPO’s shares in the city.
Rusal said its debt obligations would also impose “strict limits” on capital expenditure and dividend payments.
Rusal revealed an $868 million net loss for the six months ended June 30th versus a year-earlier profit of $1.41 billion and said growth in aluminium prices would be crucial to recovery.
It cited a base case average forecast of an 8.6 per cent annual rise in aluminium prices between 2009 and 2013. But should prices undergo a sustained fall of more than 20 per cent, Rusal’s ability to meet debt targets could be compromised.
The third page of the prospectus carried a warning in red ink that Rusal may cease to continue as a going concern should it fail to comply with repayment terms or be unable to extend, refinance or repay a $4.5 billion loan from state bank VEB, which is chaired by Russian prime minister Vladimir Putin.
The VEB loan, which comes due on October 29th, 2010, was one of the key concerns cited by Hong Kong authorities when examining the IPO proposal. Rusal said it would seek to extend it or ask state-run Sberbank to assume the debt.
VEB, which has pledged to buy about one third of the shares on offer at the IPO, has security over Rusal’s stake in Russian miner Norilsk Nickel. As of December 17th, 2009, the stake was worth 51 per cent more than the debt owed to VEB.
As aluminium prices have rebounded from seven-year lows in February, so too have Rusal’s fortunes. The company forecast a full-year 2009 profit of at least $434 million.
Aluminium on the London Metal Exchange averaged $1,474 a tonne in the first half of 2009 versus $2,895 in the same period last year. In the second half of 2009, the metal – used in construction, cars and packaging – averaged $1,942.
Rusal’s 2008 revenues were $15.69 billion, up over $2 billion from the previous year.
Revenues by mid-year 2009 were $3.76 billion, compared with $8.35 billion a year earlier.
The prospectus also addressed issues surrounding Mr Deripaska, who confirmed he had been denied a US visa on several occasions but had subsequently visited the country, most recently in August and October 2009.
Rusal said Mr Deripaska, its chief executive, had informed the company he was not, to the best of his knowledge, under investigation by any US authority.
Mr Deripaska also said he “strongly denies and will vigorously resist” claims by Michael Cherney, who has brought a London court case against his former associate related to payment for his interest in aluminium assets now controlled by UC Rusal.
While Mr Deripaska opposes the claim, UC Rusal acknowledged its majority owner’s influence would be significantly reduced should he lose the case and use UC Rusal shares to fund the payment.
Mr Deripaska’s En+ Group owns 53.35 per cent of UC Rusal and its share is expected to drop to 47.59 per cent after the IPO.
UC RUSAL plans to start pre-marketing of the IPO on January 5th, with a roadshow starting on January 11th and pricing on January 21st to 22nd. – (Additional reporting: Reuters)
