A United Co. Rusal logo sits on aluminum ingots in a warehouse ahead of shipping at the foundry in the Krasnoyarsk aluminum smelter, operated by United Co. Rusal, in Krasnoyarsk, Russia. (Photographer: Andrey Rudakov/Bloomberg)

Mnuchin Gives Rusal Sanctions Escape Route After Market Tumult

(Bloomberg) -- The Trump administration has given United Co. Rusal a clear yet tricky path for getting off the U.S. sanctions list: sever ties with its largest stake-holder, Oleg Deripaska.

Treasury Secretary Steven Mnuchin made the overture early Monday after weeks of complaints from investors worried about a move that had roiled metals markets and put the company’s future in jeopardy.

Yet actually getting back into the good graces of the American financial system could be complicated. Deripaska controls a 48 percent stake in Rusal and that may not be easy to sell because he himself has been sanctioned.

Aluminum consumers and banks are wary of doing business with any individual or company on a sanctions list, analysts say.

Mnuchin extended the deadline by five months for companies to wind down dealings with Rusal, and said it would provide relief if Deripaska relinquished control. But even if Deripaska divests his stake, uncertainties remain about the company’s future, said John Mothersole, a metals analyst at IHS in Washington.

“The risks in dealing with Russian aluminum are so great now that people will keep them at arm’s length until there’s more clarity,” Mothersole said in an interview. “I see boards all across the globe, whether it’s a light-vehicle manufacturer, aerospace producer or rolling mill, saying they don’t want to take the headache.”

Mnuchin’s statement offered an unusually explicit formula for a sanctioned entity to free itself of the U.S. restrictions, signaling the administration’s desire to target President Vladimir Putin’s allies without inflicting broader economic harm.

Aluminum Plunges

It was the first time Mnuchin had issued such a statement, and investors responded swiftly, sending aluminum to its biggest drop in eight years.

“This is good policy -- if the U.S. can make sure that Deripaska doesn’t benefit from the wind-down and the assets are out from under the perceived thumb of Putin, it’s a big win for the sanctions,” said Brian O’Toole, a senior fellow at the Atlantic Council who previously worked in Treasury’s sanctions unit.

Treasury targeted Deripaska as part of a sanctions package that hit dozens of Russian tycoons, companies and key allies of Putin. His name has also surfaced in the U.S. investigation into Russian meddling in the 2016 election over his business ties to former Trump campaign chairman Paul Manafort. Deripaska controls Rusal through a shareholder agreement with others including Glencore Plc and Viktor Vekselberg, who is also under sanctions.

In the statement Monday, Mnuchin said “Rusal has approached us to petition for delisting,” and that the U.S. is “not targeting the hardworking people who depend on Rusal and its subsidiaries.”

According to the statement, Treasury sanctioned Rusal because of its ties to En+ Group, which was also penalized because of its ties to Deripaska. A Treasury spokesman also clarified that American dollars could be used for debt payments related to Rusal’s wind-down operations.

The Trump administration recently decided to hold off on additional sanctions. Mnuchin said last week that the penalties the administration had imposed were already having the necessary effect. However, he didn’t rule out further financial restrictions.

“The goal of sanctions policy is to remove as far as you can the sanctioned entity from the financial sector. If people are willing to do that, then that seems to be in line with the goal,” said Adam Smith, a former senior adviser in Treasury’s sanctions unit and now a partner at law firm Gibson, Dunn & Crutcher in Washington. “The goal was probably never to impact the aluminum sector.”

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