Tycoon Deripaska Weighs Moving Sanctioned Companies to Russia

(Bloomberg) -- Billionaire Oleg Deripaska’s companies said they’re considering re-domiciling from the British isle of Jersey to a Russian offshore zone created by the Kremlin in response to American sanctions.

United Co. Rusal is considering the switch after Russia signed into law this month a proposal to create Special Administrative Regions, the aluminum giant said Friday. Those zones in Primorsky and Kaliningrad will allow internationally registered companies to move back to Russia, while retaining tax benefits. It would need to be approved by stock exchanges, clearing houses, creditors and counter-parties, as well shareholders, Rusal said.

Tycoon Deripaska Weighs Moving Sanctioned Companies to Russia

While Deripaska has been searching for a way to lift the sanctions imposed four months ago on the tycoon and his companies, re-domiciling could involve costs and have little or no impact on the U.S. restrictions, according to Kirill Chuyko, head of strategy at BCS Global markets. Rusal’s board said such a move may be in the best interests of shareholders, without elaborating.

“The move to Russian offshore zones won’t lead to lifting of the sanctions and won’t ease supply and sales issues that Rusal is experiencing," Chuyko said by phone.

The press services of both En+ and Rusal declined to comment on the potential advantages of re-domiciling.

Politically Correct

London-listed En+ Group Plc, which controls 48 percent of the aluminum company, and Hong Kong-listed Rusal might also face costs from re-domiciling at a time when the sanctions are casting doubt on the metal producer’s ability to secure new contracts, said Chuyko. Still, such a move might be politically astute.

"The move would look politically correct in the eyes of the Kremlin, but re-domiciling is considered to be significant reorganization, thus may require de-listing from international exchanges and buyout of minority owners,” said Chuyko.

The announcement from Rusal comes a day after En+ said it’s studying a similar move. At the same time, En+’s board on Thursday “approved in principle” re-domiciling its power unit from Cyprus to the Russian offshore zones.

While En+ remains “committed” to its London listing, according to Chairman Greg Barker, it "looks forward to being amongst the first major international Russian companies to take advantage of this opportunity."

U.S. Negotiations

Deripaska tasked Barker to work on a plan to help to lift sanctions, but talks with the U.S. Treasury aren’t entirely going smoothly. The Russian billionaire views the U.S. demands for lifting the sanctions as too harsh, people familiar with his thinking told Bloomberg News in early August.

The latest proposal from Deripaska was for the billionaire to reduce his stake in En+ to less than 45 percent by transferring shares to VTB Bank, people familiar with the matter said this week. Once the sanctions on En+ were lifted, VTB would sell those shares to investors and use the proceeds to pay off debt that En+ owes the bank, they said.

The U.S. has not approved the plan, but extended the deadline for investors to sell out from the sanctioned assets until Oct. 23.

©2018 Bloomberg L.P.