Deripaska's Fall: From Davos Party King to Outcast in Three Days

(Bloomberg) -- At Davos this year, Oleg Deripaska threw a party with champagne, Russian folk dancers and a performance by Enrique Iglesias. Now the Russian billionaire is on an international blacklist usually reserved for terrorists and warlords.

On Friday, the U.S. aimed its toughest sanctions at Deripaska’s metals empire, banning Americans from dealing with companies including United Co. Rusal. As the drastic nature of Washington’s move became clear on Monday, the biggest aluminum producer outside China lost half its value in one day.

"This is economic murder of the company," according to a senior executive at a trading house, who asked not to be identified talking about a customer.

Deripaska's Fall: From Davos Party King to Outcast in Three Days

In essence, the sanctions barred Deripaska from participating in the global dollar economy and the impact was immediate: international investors dumped stock and bonds issued by his companies as aluminum traders refused to buy Rusal’s metal.

The potency of the U.S.’s measures sent shock waves through Russia’s financial markets as traders fretted the corporate empires controlled by other tycoons could come under attack.

Moscow-traded stocks fell the most in four years, the currency slid the most in the world and the nation’s credit risk soared. Investors dumped companies with ties to major Russian oligarchs. MMC Norilsk Nickel PJSC, controlled by Vladimir Potanin, plunged 19 percent in London, the most since 2008.

Kremlin Aid

Rusal now faces the challenge of running a business with customers like Toyota Motor Corp. while being blacklisted by the Western financial system. While the Kremlin has tried to provide reassurance, its options are limited. The government hasn’t settled on what form aid will take, according to a senior official involved in the process.

For Deripaska, long seen as one of the most controversial oligarchs close to President Vladimir Putin, the sanctions represent a fall from the Western business circles he cultivated for decades. The tycoon is known for his annual parties at Davos and made headlines in the U.S. last year for links to Donald Trump’s former campaign manager Paul Manafort.

Deripaska's Fall: From Davos Party King to Outcast in Three Days

The 50-year-old executive rose up through the famously bloody chaos of the Russian aluminum industry of the 1990s. Dozens died in the conflict and many more were wounded, including two of Deripaska’s managers.

He has long been dogged by allegations from that era, but they have never been substantiated in court. In announcing the sanctions, the U.S. Treasury referred to "allegations that Deripaska bribed a government official, ordered the murder of a businessman, and had links to a Russian organized crime."

Aluminum Giant

He spearheaded consolidation in Russia’s aluminum industry. After a 2007 merger with OAO Sual Group and assets from Glencore Plc, his dominance was complete and Rusal was the world’s largest producer of the metal.

“Deripaska has always been the face of Russian metals globally,” said Livia Paggi, a director for political risk at consultancy GPW & Co. in London. “He might be able to continue to do business in Russia, but his businesses in the Western market have been severely impacted this week.”

Deripaska called the reasons for the sanctions as “groundless, ridiculous and absurd,” in a statement, issued by his press service. The billionaire has previously said his business was flourishing long before Putin came to power and repeatedly denied any wrongdoing.

On the day the U.S. sanctions were announced, Rusal posted a photo on Facebook celebrating the company’s 18th birthday, complete with gift bags and red and white balloons.

“Happy Birthday, Rusal!” the company said on Facebook. “No matter how many years old, the company will always be energetic and charged for success.”

Rusal shares collapsed the next trading day, falling 50 percent in Hong Kong. The company warned that the sanctions could trigger technical defaults on its loans and told international clients to stop payments.

As Deripaska flounders, attention is now focused on whether the U.S. Treasury will tighten the noose on Putin’s inner circle of oligarchs. As well as Norilsk Nickel’s Potanin, investors see risks for Roman Abramovich, the billionaire best known outside Russia for owning English football champions Chelsea FC. His steelmaker Evraz Plc dropped 14 percent in London on Monday.

“Investors are afraid that now any Russian company is at risk of sanctions,” said Vadim Bit-Avragim, a money manager at Kapital Asset Management LLC in Moscow.

©2018 Bloomberg L.P.