Bet on Russian Pariah Rusal Pays Off Big Time for This Investor

(Bloomberg) -- When United Co. Rusal's stock gained overnight pariah status in April after the U.S. slapped sanctions on Russian billionaire Oleg Deripaska's core empire, one investment manager saw a buying opportunity.

Now, Kingsferry Capital Management Group Ltd. is bathing in the glory.

Having spent $36 million steadily amassing a position in the aluminum producer's Hong Kong-traded stock (worth more than $65 million at its peak), the firm is sitting on an 80 percent profit, based on its average share-purchase price over the period. In January, the sanctions were lifted.

“When the news came out, there was a really overwhelming fear in the market about this company, whether it would be able to survive these kind of sanctions,” said Kingsferry's Chief Investment Officer Hugo Chan, who splits his time between Los Angeles and Shanghai. “We came to the conclusion that bankruptcy was quite unlikely.”

That conviction made Rusal's 50 percent one-day plunge on April 9 easier to shrug off. Chan, a former investment banker, felt a rebound was inevitable. Sourcing the shares, however, turned out to be trickier.

When Kingsferry started to seek Rusal stock a few weeks later, no international broker would facilitate a buy order, fearing the implications for their U.S. operations. Chan tried calling around local Hong Kong brokers and finally found some takers, but then no international custodian would keep the shares. Unperturbed, he left the stock at the broker level, and kept on buying.

With aluminum a key Russian export, and Rusal paying the wages of more than 72,000 people, Chan figured Moscow would never let the company go bust. It would also be in the interests of Deripaska, the real target of the sanctions, to own a smaller stake in a sound firm rather than a worthless one, he said. Plus, as the world's second-biggest producer of the metal, Rusal's survival was important to many other countries.

Chan founded Kingsferry in 2016 as a value-investment firm. It currently oversees more than $200 million in a long-only fund and manages accounts that invest globally. Special-situations investments, like Rusal, are its key driver of returns -- others have included a fund tracking Turkish stocks in August when the lira tanked.

Kingsferry has since sold some of its Rusal holding, helping its fund return 17 percent in January. Year-to-date, it's up more than 23 percent, net of fees.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Peter Vercoe

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