RusAl Plans IPO Despite Retail Ban

United Company RusAl will push ahead with its $2 billion IPO in Hong Kong, even though a ban on a retail offering means the deal is effectively little more than a Russian state bailout.

The world’s largest aluminum producer will proceed with marketing the IPO in January after Hong Kong’s Securities and Futures Commission decided late Friday to approve the controversial float, but on the condition that ordinary investors are left out of it, two sources told Reuters.

Regulator concern was raised by RusAl’s $4.5 billion loan from state-owned Vneshekonombank, which is due to be repaid next year, as well as a London lawsuit against the aluminum giant’s owner, Oleg Deripaska, that could potentially see a stake sold to former business associate Michael Cherney.

A Moscow source close to the IPO process shrugged off the decision to ban a retail offering, saying RusAl would push ahead with the IPO in early 2010 and already had some institutional investor backing. “The SFC decision of no offer to retail investors via the [Hong Kong] tranche does not have an impact on the company’s target institutional investor group as well as on its listing plan and valuation,” the source said.

The share sale will be led by Credit Suisse Group and BNP Paribas, with banks including BOC International Holdings and VTB Group helping to manage the sale.

Ernest Kong, a spokesman for the commission, and RusAl declined to comment.

Analysts, however, have said the success of the IPO may rely heavily on the Russian government, which rescued the company when a collapse in demand for aluminum sent it into a debt nightmare in 2008. Its borrowings almost doubled in 2008 after RusAl bought 25 percent of Norilsk Nickel. Commodity prices subsequently collapsed.

VEB, which bailed out the group with the $4.5 billion loan, has already agreed to buy nearly one-third of the 10 percent of shares on offer.

RusAl is due to repay the sum in October 2010, but a banking source said the company had assured the regulators that Russia’s biggest lender, state-controlled Sberbank, would be able to refinance the debt. Earlier this month, RusAl refinanced $16.8 billion debt with foreign and Russian lenders, a key stage in its recovery from near collapse.

RusAl would be the first Russian company to list in Hong Kong, which is keen to attract overseas funds, but the lack of retail investor participation could be a blow to the country’s growth plans. Hong Kong’s population are famously enthusiastic about IPOs, often lining up at banks to grab a share or two of popular offerings. Small investors are also notorious for publicly venting their outrage when they feel regulators have let them down.

China is the world’s biggest user of aluminum. RusAl is in talks with potential investors including China Investment Corporation, the nation’s sovereign wealth fund, and Singapore’s Temasek Holdings, the Hong Kong Economic Journal said in October.

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