Tangled Rusal Ownership Thwarts Easy End to Sanctions: QuickTake

(Bloomberg) -- United Co. Rusal is searching for a way to keep sanctions at bay, now that U.S. Treasury Secretary Steven Mnuchin gave the aluminum producer a stay of execution. But the price might be having to separate itself from its founder and biggest shareholder. The U.S says it's ready to drop the penalties on Rusal if its billionaire owner, Oleg Deripaska, relinquishes control. That's more complicated than it sounds.

1. Who owns Rusal?

Ownership is wrapped up in a web of offshore entities. Jersey-registered En+ Group -- also sanctioned by the U.S. -- owns 48.13 percent of Rusal. Deripaska controls En+ through Fidelitas International Investments Corp., which is incorporated in Panama. Sual Partners, co-owned by sanctioned billionaire Viktor Vekselberg and U.S. citizen Len Blavatnik, holds 26.5 percent. A wholly owned subsidiary of Glencore Plc owns 8.75 percent and most of the remainder is in free float.

2. So why does the U.S. say Deripaska controls Rusal?

According to a 2010 shareholders' agreement, as long as En+ controls a 40 percent stake, it can nominate half of Rusal's board of directors and name its chief executive. The agreement also regulates the sale of stakes by any of the major shareholders, giving the others right of first refusal. But it hasn't always ensured harmony among the owners, with Sual suing En+ and Glencore in 2012 over supply contracts it said were signed without its consent.

3. Would changing the shareholders' agreement solve things?

The agreement has very specific termination provisions relating to each major shareholder, and the deal would cease to function if the En+ share in Rusal falls below 8.6 percent. Negotiating changes to the terms may be difficult because of sanctions on Deripaska, En+ and Vekselberg. Immediately after the measures were announced, Glencore's Chief Executive Officer Ivan Glasenberg resigned from Rusal's board.

4. Why doesn't Deripaska have a controlling stake?

A deal for Deripaska to gain a majority stake was in the cards before it fell victim to the sanctions. Under a non-binding agreement signed in October, Glencore planned to swap its Rusal stake for En+ shares, boosting En+'s stake in the aluminum producer to nearly 57 percent. Glencore shelved that deal after the sanctions were announced.

5. Is Deripaska or Rusal the main target of sanctions?

Rusal was one of eight Deripaska-linked firms blacklisted by the U.S. on April 6 in response to Russia's “malign activity around the globe.” The U.S. Office of Foreign Assets Control said Deripaska was targeted for reasons including threatening the lives of business rivals, bribing government officials and having links to organized crime. But Treasury Secretary Steven Mnuchin walked back some of the toughest measures against Rusal this week, saying Deripaska was the intended target rather than “the hardworking people who depend on Rusal.” Deripaska has called the reasons for the sanctions groundless and denied any wrongdoing.

6. Could Russia nationalize Rusal?

Russia's industry minister, Denis Manturov, Tuesday said that option wasn't being ruled out though no specific proposals have been made. Takeover by the state or a state-owned entity would remove Rusal from Deripaska's control, but personal sanctions on him could make it difficult for the tycoon to receive any compensation for his stake.

The Reference Shelf

• Bloomberg reports Deripaska's business ties with Paul Manafort were a reason Robert Mueller began to investigate the lobbyist
• Leonid Bershidsky on why the U.S. targeted Deripaska with its harshest sanctions yet and what the latest changes mean about the restrictions as a policy tool
• U.S. Treasury's statement announcing sanctions says there are allegations Deripaska ordered a murder and Treasury press release easing the restrictions
• A Bloomberg story about Sual's lawsuit against Rusal, Glencore and En+

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Gregory L. White, Torrey Clark

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