January 23, 2019 / 3:06 PM / 6 months ago

Breakingviews - Oleg Deripaska’s En+ deal is more sour than sweet

Russian aluminium tycoon Oleg Deripaska arrives for the talks of Russian President Vladimir Putin with South Korean President Moon Jae-in at the Kremlin in Moscow, Russia June 22, 2018. REUTERS/Sergei Karpukhin

By George Hay and Dasha Afanasieva

LONDON (Reuters Breakingviews) - Oleg Deripaska has become a political football. A pre-Christmas deal with the U.S. Treasury to lift sanctions on the Russian oligarch’s power group En+ has riled Democrats worried about the Kremlin’s influence in domestic politics. While the deal contains multiple grey areas, the overall upshot looks sufficiently black and white.

According to a New York Times report on Monday, Deripaska’s settlement allows him to escape hundreds of millions of dollars in debt while leaving him and his allies with majority ownership of En+. Both statements could be correct. While the oligarch has to reduce his En+ stake from around 70 percent to 45 percent, shares held by possible allies such as his ex-wife would push that to 57 percent. Part of Deripaska’s dilution has been caused by the oligarch transferring some of his shares to VTB, a Russian majority state-owned bank that had lent entities controlled by Deripaska large sums of money, according to a Treasury letter to Congress released in December. While it’s slightly odd to describe this as debt forgiveness, what the Treasury has so far disclosed doesn’t make clear the exact terms of Deripaska’s arrangement with VTB.

Either way, it doesn’t mean the overall deal is a soft touch. The U.S. Treasury limits Deripaska’s voting influence to 35 percent, with everything above that controlled by independent third parties. He is forbidden to sell his shares or collect dividends from them. If Rusal, its parent company En+, or a foreign bank give him any leeway, they could wind up sanctioned themselves.

Those keen to portray the deal as further evidence of cosy relations between the White House and the Kremlin can say the United States could turn a blind eye to future Deripaska transgressions. There is nothing in the U.S. Treasury’s Dec. 19 letter to Congress that explicitly prevents Deripaska from repeating his habit of borrowing large sums of money against the value of his holdings. Nor is there clarity on whether VTB grabbed its En+ collateral at the bombed-out $5 per global depository receipt level that En+ fell to last April, or nearer the $9 level they implicitly trade at now.

Still, Deripaska has gone from owning a 70 percent stake worth $4.9 billion on April 5 to a 45 percent stake worth $2.2 billion now. Even if this had not occurred via various processes that diluted his position, he would have had to sell his stake well above the En+ IPO price of $14 per global depository receipt – and he wouldn’t have been able to collect the proceeds if he had. That seems reasonably robust.

Breakingviews

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