Potanin and Rusal Back $2 Billion Nornickel Buyback Plan

MMC Norilsk Nickel PJSC’s biggest shareholders agreed to support a $2 billion share buyback this year as part of efforts to shore up its market valuation.

Nornickel’s biggest investors -- billionaire chief Vladimir Potanin’s Interros Holding, United Co. Rusal International PJSC and a group led by Roman Abramovich -- proposed the buyback because the company is “fundamentally undervalued,” the miner said in a statement.

Its shares jumped as much as 3.2% in Moscow to the highest in more than a month. While the company also announced a reduced dividend for 2020, the buyback means shareholder returns overall will be bigger than expected, said Dan Shaw, an analyst at Morgan Stanley.

Nornickel has contended with a series of high-profile setbacks, starting with a massive fuel spill in the Arctic a year ago that resulted in a $2 billion fine. More recently, flooding at two key mines disrupted production and forced the company to lower output targets.

At the same time, investor returns have been a growing focus at Nornickel, which has boasted one of the most generous dividend policies among global miners over the past decade, dictated by a shareholder agreement between Interros and Rusal.

Read More: Potanin Fuels Spat With Rusal Over Payouts From Nornickel

The 2012 deal, which ended a dispute at the time between Nornickel’s heavyweight investors, is now nearing expiry -- 2021 will be the final dividend covered by the agreement. As a result, a longstanding debate is flaring up over how much the Russian miner should be paying out.

For 2020, the board has approved a fourth-quarter dividend of 1,021.22 rubles per share (about $13.25 per share), it said in a statement on Friday. That brings the full-year figure to $3.3 billion, or about 43% of core earnings, according to Bloomberg calculations. Under the terms of the shareholder agreement, the company could have paid about 60% of earnings before interest, taxes, depreciation and amortization.

The 2020 dividend was calculated based on free cash flow, something that was proposed last month by Nornickel’s management. That adjustment could signal that the parties are closer to a deal on future dividend calculations, said Kirill Chuyko, an analyst at BCS Global Markets.

Unanswered Questions

There are still key unanswered questions surrounding the share-repurchase plan -- particularly whether Rusal intends to participate.

Buybacks were a major point of contention during past disputes between Potanin and Rusal, because the aluminum producer has pledged its nearly 28% stake in Nornickel under a $4.5 billion loan from Sberbank PJSC, and therefore couldn’t benefit from such programs like other investors.

That may no longer be the case, said Chuyko.

“Rusal’s stake in Nornickel is now worth about $14 billion, making it easier to get the lender’s approval for a buyback,” he said.

Rusal’s press service declined to comment on whether the company will take part in the new buyback, while confirming its support for the proposal.

The repurchase program is expected to be open to all shareholders but its timing and terms will be defined later, a Nornickel spokeswoman said.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.