Kremlin Faces Unappetizing Menu for Helping Sanctioned Rusal

(Bloomberg) -- Russia’s government has pledged to help the tycoons and companies hit by U.S. sanctions, but hasn’t laid out any detailed plans. United Co. Rusal, the aluminum giant controlled by billionaire Oleg Deripaska, poses the biggest challenge, with its global operations cut off from clients, suppliers and banks by the U.S. restrictions.

The problem is huge:

  • Annual revenue: $10 billion
  • Debt: $8.6 billion
  • Employees: 61,000
  • Global operations: in 12 countries on 5 continents

Below are some of the possible options for the Kremlin to rescue the company. The government may wind up choosing elements from several of them. For now, it hasn’t found any easy solutions.

  • Defiance: keep the current ownership structure but shift to clients, lenders outside the reach of sanctions, both by boosting domestic demand and seeking other foreign customers
    • Pluses: would avoid an ownership fight with Deripaska
    • Minuses: potentially long and disruptive transition period, not clear if there are enough customers and lenders outside the reach of sanctions to sustain the company
  • De-Oligarchization: Deripaska, the main target of sanctions, gives up his 48 percent stake in Rusal in hopes the U.S. Treasury will then lift the restrictions on the company
    • Pluses: would minimize disruption to business
    • Minuses: no certainty that Treasury would lift the sanctions; Deripaska unlikely to agree and could be compensated only in a form not subject to sanctions, such as ruble payment in Russia
  • Nationalization: permanent or temporary takeover of Rusal by state-controlled entity, possibly through bankruptcy
    • Pluses: would keep the company together
    • Minuses: not clear U.S. Treasury would remove a nationalized Rusal from the sanctions list, likely to be opposed by Deripaska, who would lose his stake, as well as numerous other shareholders and creditors
  • Breakup: shift Rusal’s assets into a new company or companies not subject to sanctions, possibly through bankruptcy
    • Pluses: could relatively quickly reconstitute company under new structure, limiting disruption
    • Minuses: new company could be hit with new sanctions, Deripaska would have to lose ownership, other shareholders and creditors also might challenge a breakup or demand costly compensation
  • Bailout: Russian state banks provide financing, government buys metal to keep company operating
    • Pluses: minimizes disruption to business
    • Minuses: very costly for Russian government, which would still need to find use for aluminum. Domestic demand for the metal currently is about a fifth of Rusal’s output

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