Bloomberg News

Norilsk Shareholders Sell Out to Reap 60% Premium From Buyback

October 05, 2011

Oct. 5 (Bloomberg) -- OAO GMK Norilsk Nickel, the Russian mining company that opened a $4.5 billion buyback a week ago, is seeing shareholders queue up to tender their stock as the prospect of a 60 percent premium drives sales.

“In the current market you can buy a $19,000 stake today and sell it for $30,600 in a buyback,” Vladimir Solodukhin, managing director of Moscow-based Broker Credit Service, said by telephone. Retail clients are buying into Norilsk “actively” to sell for a profit, he said.

Norilsk began repurchasing stock on Sept. 28, opening its third buyback this year. The nickel producer is offering $306 a share, or $30.60 per global depositary receipt, a 20 percent premium to the six-month average price, it said in August. The stock has tumbled in Moscow trading in the past month, boosting the premium to more than 60 percent.

The company is seeking to repurchase 7.71 percent of stock on a pro-rata basis in the monthlong buyback. Tenders of less than 100 shares, or 1,000 GDRs, avoid the pro-rata rule and can be bought back in full, according to the prospectus.

That exemption “gives the opportunity to get a good return on capital,” Dmitry Smolin, a Moscow-based analyst at UralSib Capital, said by telephone. “UralSib has a lot of clients who plan to use that option.”

Shareholders are tendering their stock at register offices in Moscow, Krasnoyarsk and St. Petersburg. The office in the capital is servicing about 150 clients a day, an official at the site said today in an interview, declining to be identified.

Shares for Babushkas

“Some individuals will likely open accounts for friends or close family members or even babushkas to increase the number of shares,” Barry Ehrlich and Andrey Lobazov, analysts at Alfa Bank in Moscow, said in a note. “Owners of small companies are looking into facilitating the opening of accounts for their employees en masse.”

Norilsk’s board approved the buyback on Sept. 13, after shareholder United Co. Rusal rejected an $8.75 billion proposal to sell a 15 percent stake back to the company. The aluminum producer, controlled by billionaire Oleg Deripaska, and fellow shareholder Interros Holding Co. have been locked in a feud over influence on Norilsk’s board and use of its cash since 2008.

Rusal, which holds a 25 percent stake in total, may seek to block the buyback in court, Yulia Bushueva, managing director of Arbat Capital Management, said by phone from Moscow. “We also can’t exclude that Norilsk will cancel the buyback amid the global financial turmoil, which would lead to a further selloff in the stock,” she said.

Given the interest from retail clients, institutional investors may be able to tender only 7 percent of their holding according to the pro-rata rule, Alfa Bank said. That compares with forecasts from Troika Dialog of 15 percent, and 12 percent from Morgan Stanley.

--Editors: Amanda Jordan, Alex Devine

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net.

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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