Glencore Cancels Rusal Share Swap as Glasenberg Leaves Board
Glencore Plc, world’s largest commodities trader, started to loosen ties with Oleg Deripaska after U.S. sanctions
(Bloomberg) -- Glencore Plc, the world’s largest commodities trader, started to loosen ties with Russian aluminum tycoon Oleg Deripaska after the U.S. imposed harsh sanctions against his business empire.
Glencore won’t proceed with a plan to swap its 8.75 percent stake in aluminum producer United Co. Rusal for shares in another one of Deripaska’s companies, London-listed En+ Group Plc. Chief Executive Officer Ivan Glasenberg has also resigned from Rusal’s board.
In an indication that the sanctions will continue to reverberate through the global commodity market, the Swiss-based commodities giant said in a statement Tuesday that it’s evaluating other contracts with Rusal. The trader has a multi-year deal to buy Rusal’s metal, an arrangement that was worth $2.4 billion in 2017.
“Glencore is still evaluating the position under its contracts with Rusal, but notes that these contracts are not financially material to Glencore,” it said in the statement.
Shares in Glencore fell on Monday because of concern that the fallout from Washington’s decision to target Deripaska would spill over into Glencore’s aluminum business.
Paul Gait, a mining analyst at Sanford C. Bernstein & Co. in London, said the worries were probably overdone. In a worst case scenario, forgoing the aluminum deal with Rusal would see Glencore lose less than 1 percent of the company’s likely 2018 earnings, he said in a note on Tuesday. Even if Glencore was forced to write down the value of the Rusal stake to zero, it accounts for 1.3 percent of the company’s market cap, he said.
“We think the market overreacted,” Gait said.
Glencore’s shares rallied as much as 4.6 percent in London on Tuesday, before paring some of the gain.
Russian Market
Still, the sanctions may deprive Glencore of a key ally in the important Russian commodities market and underline the risk of building business relationships with powerful but controversial partners.
"Glencore’s sanctions-related headaches may only just have begun" Stephen Ross, a partner at London law firm Withers LLP, said by email. Any decision to pull out of existing metals contracts with Rusal could result in litigation with the Russian company or third parties for breaches of agreement, he said. "What is certain is that Glencore always comes out swinging and fights almost every case to the bitter end."
Glencore’s interest in Rusal goes back to at least 2007, when Deripaska and fellow billionaire Viktor Vekselberg, who was also sanctioned on Friday, merged their companies with Glencore’s alumina plants.
In October, when Deripaska wanted to list holding company En+ Group in London, Glencore stepped in as a cornerstone investor, pledging to swap its 8.75 percent stake in Rusal for En+ shares.
The penalties announced Friday prohibit U.S. individuals and companies from doing business with Deripaska and the affected firms. While Glencore is not considered a U.S. company for the purposes of sanctions enforcement, the action will make it complicated for anyone, anywhere to continue to work with the oligarch.
Deripaska has called the sanctions “groundless, ridiculous and absurd.”
To contact the reporters on this story: Will Kennedy in London at wkennedy3@bloomberg.net, Tom Wilson in London at twilson128@bloomberg.net.
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net, Nicholas Larkin, Tony Barrett
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