As the economic crisis softens in Russia, corporations increase their business activity and search for financing to expand operations. KAMAZ, one of the largest Russian automobile producers and part of Rostekhnologii, the State-owned meta-holding, has announced that it is moving its stock listing from RTS, the dollar-nominated stock exchange to the ruble-nominated MICEX. According to KAMAZ, the move is due to the increasing capitalization of MICEX and preferences of the financial community. The KAMAZ board has decided to de-list its shares from RTS and keep MICEX as the principle exchange platform.

Source: Kamaz

New York -- Amid the  economic slowdown in the Russian metals and mining industry, Western investment banks are exploring opportunities to gain ownership over Russian metals and mining assets. Currently, they are undervalued and their prices are likely to rise as demand for steel and ore increases worldwide. However, at present time, most of the largest Russian metals companies are in desperate need for liquidity and seek financing abroad, which might give Western banks a unique opportunity to secure ownership of strategic metals and mining assets in Russia.

According to experts, Metalloinvest, one of the major Russian metals companies and one of the largest steel and ore producers, is said to be in talks to issue convertible bonds -- debt notes which, in case of default, can be converted into company's shares. Vladimir Zhukov, Executive Director, Metals and Mining Research for Nomura, says that Metalloinvest has a slim chance to get financing unless it's backed by the companies ore deposits: "In current economic climate, Metalloinvest will have hard time securing additional financing. Any bonds issued by Metalloinvest are likely to be ignored by the market unless the bonds are convertible and backed by the company's shares and underlying assets", says Zhukov. Convertible bonds, which are becoming the prevailing form of financing of Russian companies such as Metalloinvest and Evraz, are one of the ways Western financial institutions can gain access to Russian assets.

Japan-based Nomura, one of the largest investment banks in the world, is one of the likely underwriters of Metalloinvest's convertible bonds. "We follow Metalloinvest closely, but we could not confirm any IPO or debt issuing plans at this time," said Vladimir Zhukov. Michael Thompson, senior analyst for RUXX Index, a think tank tracking Russian stocks and bonds traded on Western exchanges, says that Western investors should consider not only financial risk of owning such bonds, but also political. "For example, by becoming Metalloinvest's partner, Nomura will gain partial control over Udokan Ore deposit, which Metalloinvest secured recently, amid growing concerns that it does not have enough money to cover the Udokan development license. However, the Udokan ore deposit is considered "strategic" by the Russian government. The law currently bans non-Russian nationals from owning strategic assets, including the deposit. If Metalloinvest defaults on the convertible notes, foreign banks become stakeholders in Metalloinvest." says Thompson.

The Russian government has been very protective of its industrial giants, but amid the economic slowdown it might not be in the position to ban Western capital from entering the industry.

To contact the analyst, please write to m.thompson@ruxxindex.com

New York -- March 26, 2009 -- Norilsk Nickel, world's largest nickel producer, is has released its initial 2008 results and projections for 2009 today. According to Vedomosti, Russian business daily newspaper, the figures, showing large cash reserves and $2 billion in expected earnings for 2009 are likely to calm the investors, who grew increasingly worried about the company amid recent investigation of Norilsk Nickel's finances by the Russian government. 

$2 billions (EBIDTA) forecast is higher than that of the analysts. According to Vedomosti, Russian business newspaper, Norilsk has been cutting costs aggressively and optimizing production schedule in anticipation of drop in demand for nickel.  According to the company's CEO Vladimir Strzhalkovsky, as of last month the company had  $1 billion in cash reserves.

The company is likely to receive additional $400 to $500 million from sale of  treasury stocks, according to Kommersant newspaper. Experts agree that Norilsk Nickel, which for the most of 2008 was managed by the Interros team, and owned by Vladimir Potanin, Oleg Deripaska, Alisher Usmanov and other Russian and Western shareholders, was one of the best-managed Russian metal giants and coped well with the worldwide recession: "It's important to have strong liquidity positions at present moment. Those who do, have higher bargaining power with suppliers and are less vulnerable to credit market fluctuations", - says Michael Thompson, RUXX Index research director, who studies Russian companies listed on Western exchanges.  

The $400 to $500 million bonds sale comes from the controversial buyback program, initiated by Norilsk Nickel late last year. The company's board, as it was contractually obligated, has authorized the buyback from the minority shareholders despite the fact that the price of the assets was almost 300% higher than the market price. However, by going forward with the buyback, the company avoided the costly legal battle with investors and avoided damaging its reputation with the western financial community. Norilsk has decided to sell the treasury stocks instead of reducing the outstanding stock base, strengthening its liquidity position and limiting shareholders' exposure to market fluctuations.

The investors worried again after the government opened an investigation of the buyback program several days ago. Some observers speculate that the investigation is initiated by Alisher Usmamov, who owns a 5 percent stake in Norilsk Nickel. The Financial Times quoted Usmanov "sharing the government's concern about a seres of deals that began last summer."  Last year, Mr. Usmanov expressed interest in gaining control over Norilsk by merging it with Metaloinvest, another metals and mining giant. The merger was not approved by the Russian  government.  

"In Russia, government connections are often used for corporate takeovers", - says Michael Thompson: "However, in case of Norilsk, the takeover is highly unlikely. At the meeting with the shareholders and CEO of the metals giant, President Medvedev made it plain that Norilsk is a solid company and does not require any emergency merger assistance."

RUXX Index tracks and analyzes Russian companies listed on offshore exchanges.
Michael Thompson
RUXX Index
(646) 257-2003
michael.thompson@ruxxindex.com 

New York – February 1, 2009 – Severely weakened by the economic crisis, Russia’s top metals producers are embracing a proposal to merge into one massive company. The merger, which is subject to state approval, would make the industry less vulnerable to the rapid shifts in demand that characterize economic downturn. But while the metals giants agree on the basic plan, they differ about how much government support is needed.

Alisher Usmanov, CEO of iron ore and steel producer Metalloinvest, believes the company should be a quasi-state holding. According to U.S.-based think tank Global Insight, Usmanov’s proposal would merge his own company with Norilsk Nickel, the world's largest nickel producer, while converting both companies’ debt into government-owned shares. The Russian government would become the largest shareholder in this scenario, owning approximately 30% of the new company and pushing some private shareholders out of the boardroom. 

The second proposal, brought forward by Norilsk Nickel owners Vladimir Potanin and Oleg Deripaska, calls for a more weighted merger program. Under their plan, the merger would incorporate Norilsk Nickel, Metalloinvest, steel producer Evraz Group (owned by Roman Abramovich and Alexander Abramov) and steel and coal producer Mechel OAO (owned by Igor Zuzin). The government's shares would not exceed 25%, keeping the new company mostly private and free from direct management by the state. 

Prime Minister Vladimir Putin signaled his support for the Potanin/Deripaska proposal in his opening remarks at the Davos Economic Forum last week, saying that any direct government involvement in the economy must be handled with caution. Metals and mining is Russia's largest private industry and an indicator for the rest of the economy. Analysts and Western shareholders are closely following the merger's progress. John Foley, metals analyst for the RUXX Index, says Mr. Putin’s remarks put investors’ minds at ease:   "Russia’s metals industry obviously requires government assistance, but the less direct control is exercised by the state, the more effective the newly formed company will be. Western investors are relieved that the Russian prime minister supports this argument.”

John Foley
RUXX Index
www.ruxxindex.com

Investigative report "Western Investors Concerned about Investment Climate in Russia", prepared by RUXX analytical department and licensed under Creative Commons, is available for free download.

“The international credit crisis is hurting even Russia's wealthiest, and it is not just shrinking their bank accounts. As credit dries up and commodity prices plummet, Russian billionaires are selling assets, refinancing and, in some cases, canceling formal deals,” writes Heidi Brown of Forbes.

Most notably, a dispute between Russian metals tycoon Mikhail Prokhorov and the minority shareholders of power generator TGK-4 has resulted in an appeal to President Dmitry Medvedev himself. The TGK-4 shareholders turned to the Russian president for help after Prokhorov reneged on a promise to buy out their stakes in the wake of the financial crisis.