Rusal Nationalization Possible as Kremlin Cautious on U.S. Move

(Bloomberg) -- Russia’s government could take over United Co. Rusal temporarily to save the metals giant from the impact of U.S. sanctions, a senior official said as the Kremlin struck a skeptical tone about Washington’s decision to ease some limits on the company.

“That’s not being ruled out, but there haven’t been any concrete discussions about it,” Industry Minister Denis Manturov said in response to a question about the possibility of a temporary takeover by the state or a government-owned bank of the stake owned by sanctioned billionaire Oleg Deripaska.

Manturov’s comments came a day after the U.S. Treasury announced that it was giving U.S. and other companies another five months to wind down contracts with Rusal and would consider the Russian company’s appeal to be removed from the sanctions list. Rusal could get a reprieve if Deripaska, the main target of the sanctions, relinquishes control, according to the Treasury. The news sent a wave of relief through metals markets thrown into turmoil by the original April 6 decision to ban all U.S. entities from transactions with Deripaska, Rusal and other companies in his empire. Aluminum prices fell from recent highs and Rusal stock jumped in Hong Kong.

But Kremlin reaction was more muted. “I’d be very cautious because these statements are of an absolutely hypothetical nature,” spokesman Dmitry Peskov said on a conference call Tuesday.

Russia’s government and business elite were shocked when Deripaska and Rusal were hit with the sanctions and have struggled to come up with ways to protect Rusal, which employs more than 60,000 people and is a major exporter. Russia’s parliament also is readying a package of retaliatory measures against U.S. companies and trade, though the Kremlin last week put the brakes on that plan to give time for more analysis.

‘Contradictory’ Signals

“The signals coming from Washington now are very contradictory, so it’s hard to make any kind of conclusions,” Peskov said. Asked about the possibility of an easing of tensions in the wake of the sanctions shift, he said, “for the moment, the reality and the actual steps coming from Washington point to the opposite.”

Deripaska, who built Rusal from a collection of Soviet-era smelters and plants privatized in the 1990s into a global giant, has shown no willingness to give up his control over the company. He’s sought to find suppliers and customers unaffected by the U.S. sanctions, but so far even Chinese companies have been reluctant to violate them.

The Kremlin has denounced the U.S. sanctions as unfair economic warfare and giving in to U.S. pressure to take Rusal out of his hands would be painful politically. But just how far Moscow is ready to go to protect Deripaska’s wealth remains unclear.

The U.S. seems to be “forcing the Russian state to buy him out of Rusal,” joked Andrey Movchan, director of the economic policy program at the Carnegie Moscow Center. “Given the situation, it’s unlikely that he’ll remain the owner of Rusal.”

Government officials have said their priority in helping those hit by sanctions is the continued functioning of the companies and their workers, not their billionaire owners.

“It wouldn’t be a defeat for the Kremlin if Deripaska gives up control,” since the government’s focus is on ensure the company continues to operate, said Andrey Margolin, an economist at the Presidential Academy of National Economy and Public Administration in Moscow. “Even if the government does nationalize it, that would be only temporary,” as it could be resold later, he said.

Still, the five-month extension the U.S. granted for winding down transactions with Rusal could give the company time to reorient its operations away from partners affected by sanctions, potentially allowing Deripaska to retain control.

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net, Andrey Biryukov in Moscow at abiryukov5@bloomberg.net.

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Tony Halpin

©2018 Bloomberg L.P.