Russian tycoons seek to trim debt as sanctions sting #potash
- 28 Oct 2014
- National Post – (Latest Edition)
- By Yuliya Fedorinova and Alex Sazonov
- Bloomberg News
Russian tycoons seek to trim debt as sanctions sting
Sinking commodities’ demand cuts value of holdings
MOSCOW • Russia’s mining billionaires are starting to feel the sting of economic sanctions.
Mikhail Prokhorov, whose investment empire stretches from the world’s largest aluminum maker to the Brooklyn Nets basketball team, recently explored whether fellow oligarchs, including Vladimir Potanin, were willing to buy a portion of his US$2.7-billion stake in potash miner OAO Uralkali, two people familiar with the matter said. The reason: the sinking value of his Russian holdings means he’d like less debt and more cash, they said.
While Mr. Prokhorov aborted the plan after failing to get the price he wanted, it’s the latest example of the pressure on Russia’s commodity magnates as sanctions hit the economy at home and a global slowdown undercuts metals demand. Billionaires including Alexey Mordashov, who controls steelmaker OAO Severstal, and Mr. Potanin, the biggest shareholder in OAO Norilsk Nickel, have increased dividends from their businesses after selling some assets.
“Whenever you hear billionaires say they are not affected by sanctions and the general situation in Russia, that’s not quite true,” said Yulia Bushueva, who helps to manage about US$500-million at Arbat Capital in Moscow. “It’s natural that they are looking at options to cut the debt. Others just want to get some extra cash in the current situation.”
The prospect of a slowing Chinese economy, where decades of double-digit economic growth has driven commodities demand, is another reason they’re feeling cautious, she said.
The Russian economy teeters on the lip of recession as sanctions over the Ukraine crisis spur capital outflows and a domestic dollar shortage.
The net worth of Russia’s seven richest mining and metals magnates has dropped to US$80.8-billion from US$94.2-billion at the start of the year, Bloomberg billionaires index data show.
Uralkali’s market value declined about 56% since November last year, when Mr. Prokhorov’s companies agreed to buy about 28% of the potash maker using debt.
Mr. Prokhorov’s Onexim Group and press representatives for Severstal and Mr. Potanin’s holding company Interros declined to comment.
Uralkali, which produces potash from mines in Russia, said on Oct. 23 it will pay about 8-billion rubles (US$189.3-million) in dividends — more than in 2013 even though net income fell.
Mr. Mordashov’s Severstal said this month it will pay US$1.13-billion in interim dividends after it sold U.S. assets for US$2.33-billion. Mr. Mordashov plans to use the dividend he’ll receive from his 79% holding to cut debt related to other businesses, he said in July.
The rest of the proceeds from the U.S. assets sale will be used to cut the company’s debt, which will allow Severstal to implement a new dividend policy of paying half of its profits to investors.
Norilsk’s board is scheduled to approve US$2.78-billion of interim dividends, almost triple the amount expected. Mr. Potanin, chief executive and owner of about 30% of Norilsk, said last week the company may distribute any cash exceeding US$1-billion from its balance sheet to shareholders.
He was one of the businessmen with whom Mr. Prokhorov talked unofficially over the Uralkali deal and who rejected the idea of a purchase, the people said.
The dividend from Norilsk will help billionaire Oleg Deripaska’s United Co. Rusal, which has US$10billion of debt and owns about 28% of the nickel company.