US sanctions are killing the business of this oligarch

April 13, 2018

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A few months ago, Oleg Deripaska was riding.

The Russian billionaire took his extensive industrial holding company, EN +, published in London at the end of 2017. A few weeks later the Kremlin employee was Davos’s speech, where he reported having made a sumptuous reception with the pop singer. Enrique Iglesias.

Now, the party is over fine. Deripaska was hit last week with new and severe US sanctions concerning it, and assets it owns or controls – including aluminum producer Rusal.

Under sanctions, Americans are forbidden to do business with companies, and people of other nationalities may be sanctioned if they are facilitating business transactions.

The penalties will make it extremely difficult for Rusal to do business in dollars.

“The US Treasury has just decided to take it out,” said Anders Åslund, a senior of the Atlantic Council, of Deripaska. “He will be swept away by this.”

Rusal did not respond to a request for comment.

The company stated in a statement last week that sanctions could “be materially adverse” to its “business and prospects”. He said he will continue to comply with all applicable laws and regulations.

Rusal produces 7% of global aluminum, according to the US Treasury. International buyers, business partners and commodity exchanges are working hard to break ties with the company.

Some cuts are deeper than others.

EN + and Rusal will both be removed from the major stock indexes. Two directors resigned from the Rusal board of directors, while Moody’s Investors Service and Fitch Ratings both revoked the credit rating for the company.

More problematic for Rusal is a decision by the London Metal Exchange, the industry’s key market, to stop accepting Rusal aluminum unless the owner demonstrates that doing so is legal under sanctions.

The move will prevent the sanctioned aluminum owners from downloading it on the exchange. But it also underlines the obstacles Rusal faces in continuing to conduct business in many international markets.

Glencore (GLCNF), owner of Rusal’s global shares and buys aluminum from the company, said in a statement that he “is committed to complying with all applicable sanctions in his business and is taking all necessary measures to mitigate any risks”.

The price of Rusal’s shares has plummeted by 56% since the sanctions were announced.

“I think this is the end of Rusal,” said Åslund, a former Swedish diplomat who later served as an economic adviser to the Russian government.

Glencore also said he would not proceed with plans to exchange his stake in Rusal for shares in EN +.

Deripaska, a trained physicist, has earned a reputation as a survivor.

Emerged from the chaotic struggle for property after the collapse of the Soviet Union with a very strong fortune, which Forbes estimated at 28 billion dollars in 2008. Soon after, a sharp decline in commodity prices during the financial crisis brought down its assets net.

Asked by the Financial Times in 2010, when he came close to the cessation of business, Deripaska said: “Very close”.

He recovered his balance, and billions of his fortune, in the years that followed.

More recently, Deripaska has become the subject of political intrigue in the United States because it has a longstanding relationship with Russian President Vladimir Putin. He is also a former business partner of campaign president Trump Paul Manafort, who was indicted as part of an investigation by US special adviser Robert Mueller. Manafort has pleaded not guilty to all charges against him.

In announcing the new sanctions, the US Treasury said that Deripaska had “claimed not to separate from the Russian state”.

Deripaska described US sanctions as “unfounded, ridiculous and absurd”.

The oligarch could now need help from Putin’s government to prevent the collapse of Rusal.

Russian Finance Minister Anton Siluanov said earlier this week that the government was willing to provide a financial lifeline to Rusal. According to state media, he said that stable operations are needed to protect the company’s 170,000 workers.

Denis Manturov, Minister of Industry and Trade, said the plans had already been drawn up.

“As soon as Rusal asks for support, we will immediately try to provide it,” he said on Thursday, according to the state news agency RIA Novosti. “Support means a specific process, specific measures to be taken”.

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