Companies December 31, 2009, 9:27AM EST

Russia's Rusal Aims for $2.6 Billion IPO

To reduce its $14.6 billion debt load, the world's largest aluminum producer plans to list its shares on the Hong Kong Stock Exchange

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By Bei Hu and Kyunghee Park

(Bloomberg) — United Co. Rusal Ltd. plans to raise as much as HK$20.1 billion ($2.6 billion) in a Hong Kong initial public offering, paving the way for the world's largest aluminum producer to pare $14.9 billion of debt.

The Moscow-based company, controlled by billionaire Oleg Deripaska, will sell 1.61 billion shares at HK$9.10 to HK$12.50 each, according to a statement filed to the city's stock exchange today. It's offering a stake of about 10.6 percent in the form of shares and global depositary receipts.

Rusal is seeking to capitalize on a 51 percent surge in Hong Kong's benchmark stock index this year and become the first Russian company to list in the city in what could be the territory's biggest IPO in 22 months. The offering, delayed by regulators at least twice on concern about the company's debt, would give Rusal a market value of as much as $24.4 billion, similar to Aluminum Corp. of China Ltd. (ACH).

"This is actually a pretty high-risk issue," said Francis Lun, a Hong Kong-based general manager at Fulbright Securities Ltd. "If the company doesn't come to the market to raise funds, it will go under a mountain of debt."

The company is banned from marketing the shares to retail investors and will only sell stock to international institutions and wealthy Hong Kong individuals, according to the statement. Individuals who buy shares through intermediaries must invest at least HK$1 million.

Repay Debt

"The group intends to use all the net proceeds received from the global offering to immediately reduce outstanding debt and to satisfy other obligations to its creditors," the company said in the statement.

Russian state development bank Vnesheconombank (VNECB:RU), which is also called VEB, Nathaniel Rothschild's investment company NR Investments Ltd., New York hedge-fund manager Paulson & Co., and Malaysian billionaire Robert Kuok and companies controlled by him agreed to buy HK$6.86 billion worth of shares in Rusal's IPO.

The four will buy a combined 635 million shares, or 39 percent of those on sale, should the IPO be priced in the middle of the range, according to a prospectus posted on the Hong Kong stock exchange's Web site. The investors won't sell their shares for six months.

Should Rusal price the shares at the top of the range, the IPO would be the largest in Hong Kong since China Railway Construction Corp., builder of more than half the nation's railroads, raised HK$20.2 billion in March 2008.

Deripaska's Stake

Deripaska's stake in Rusal will be diluted to 47.6 percent from 53.4 percent after the share sale, according to the prospectus. The stake held by Glencore International AG, the world's largest commodity trader, will fall to 8.65 percent from 9.7 percent and Russian billionaire Mikhail Prokhorov's holding will decline to 17.1 from 19.2 percent. Viktor Vekselberg's and Len Blavatnik's interests will fall to 15.9 percent from 17.8 percent.

Rusal posted a net loss of $868 million in the first half of 2009, compared with a $1.4 billion net income a year earlier. The aluminum producer had a loss of $6 billion for 2008.

The price of aluminum plunged 36 percent in London last year as the global recession curbed demand from carmakers and builders. The decline also hurt other producers, with Aluminum Corp. of China, also known as Chalco, only posting its first profit in four quarters in October. Chalco is the country's largest maker of the metal.

Rusal's Valuation

Rusal "would definitely have to be at a discount to Chalco, there's no question about that," Mark Mobius, who oversees about $34 billion of developing-nation assets at Templeton Asset Management Ltd. including Chalco shares, said by phone in Tokyo.