Glencore's Russian Aluminum Ties Just Got More Complicated

(Bloomberg) -- The latest U.S. sanctions against Russia will raise some tough questions for Glencore Plc and its billionaire chief Ivan Glasenberg.

The commodity giant is one of the top shareholders in aluminum producer United Co. Rusal, one of 12 oligarch-controlled companies sanctioned Friday, and Glasenberg sits on the company’s board. Glencore’s also the biggest buyer of Rusal’s metal, thanks to a multi-year arrangement that was worth $2.4 billion in 2017.

It’s unclear whether Glencore needs to exit the holding in Rusal, which is controlled by billionaire Oleg Deripaska, or stop buying aluminum from the Russian company if it wants to avoid secondary sanctions. The aluminum deal, one of Glencore’s biggest contracts, expires this year and the companies have yet to announce a renewal.

“What happens with Glencore is a very large and complicated question,” said Maximilian Hess, senior political risk analyst at AKE International. “It certainly makes things more difficult.”

Glencore said it was too soon comment, having only just received news of the sanctions.

Deripaska called the reasons for the sanctions “groundless, ridiculous and absurd” in a statement issued by his press service. “I am preparing to celebrate Russian Orthodox Easter on Sunday and will then analyze the emerging situation with our lawyers early next week and provide some comments,” he said.

Shares in Rusal and En+ Group Plc, Deripaska’s company that controls the aluminum maker, both dropped 18 percent in Moscow on Friday.

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.

Under U.S. law, any entity or individual, U.S. or otherwise, will now face a risk of secondary sanctions for doing business with Rusal or EN+, said Brian O’Toole, a former chief of staff at the Office of Foreign Assets Control, which draws up sanctions.

Visa Bans

If OFAC determined that Glencore was continuing to participate in or facilitate financial transactions for Rusal, those secondary sanctions could include anything from visa bans for its senior executives to blocking the company’s access to U.S. dollars, O’Toole said.

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 EN+, Glencore stepped in as a cornerstone investor, pledging to swap its 8.75 percent stake in Rusal for EN+ shares. That share swap was due be completed this month but is likely to be complicated by the sanctions, said O’Toole.

“If I were Glencore I would be seriously rethinking," he said.

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