UC RUSAL plans to raise up to $2.6 billion in a landmark Hong Kong IPO next month and is betting on aluminum price growth to repay nearly $15 billion in debt and restore profits after a miserable first half of 2009.
The world's largest aluminum maker on Thursday unveiled a 1,141-page prospectus for the first Russian share float in Hong Kong, detailing its finances in public for the first time and answering concerns related to billionaire owner Oleg Deripaska.
The valuation appears to be very aggressive, said Chris Weafer, chief strategist at Russian investment bank UralSib.
UC RUSAL is the jewel in the crown of Deripaska's business empire and helped its majority owner to the head of Russia's rich list before the economic crisis more than halved the value of the aluminum produced by its Siberian smelters.
UC RUSAL is offering 1.6 billion shares, or a stake of about 10 percent, in a range of HK$9.10 to HK$12.50. The January 27 listing will be among the first major IPOs of a non-Asian firm in Hong Kong and the first Hong Kong-Paris dual listing.
The company spent most of this year in talks with creditors to secure Russia's biggest ever restructuring deal, clearing the way for it to go public. Pricing at the top of the range would raise $2.58 billion, and at the bottom, $1.87 billion.
A valuation closer to $1.5 billion for that stake had been considered by many potential investors as more appropriate, said Weafer.
The offer price values UC RUSAL at 11 to 14 times 2010 basis EV/EBITDA and means the company values itself at upto $26 billion.
Aluminum Corp of China Ltd <601600.SS> <2600.HK> trades at about 12 times, a source close to the deal said. Another major aluminum producer, U.S.-based Alcoa , has a market capitalization of $15.6 billion.
The IPO has attracted a list of big name investors, including Nathaniel Rothschild's company and U.S. hedge fund Paulson & Co, but has not been without hiccups.
It was delayed by Hong Kong authorities due to caution over RUSAL's massive debt burden and approval was granted with an unprecedented proviso barring the sale of shares to Hong Kong's retail market, a hungry group of individual investors usually allowed at least 10 percent of an IPO's shares in the city.
UC RUSAL said its debt obligations would also impose strict limits on capital expenditure and dividend payments.
RUSAL revealed an $868 million net loss for the six months ended June 30 versus a year-earlier profit of $1.41 billion and said growth in aluminum prices would be crucial to recovery.
It cited a base case average forecast of an 8.6 percent annual rise in aluminum prices between 2009 and 2013. But should prices undergo a sustained fall of more than 20 percent, RUSAL's ability to meet debt targets could be compromised.
The third page of the prospectus carried a warning in red ink that RUSAL may cease to continue as a going concern should it fail to comply with repayment terms or be unable to extend, refinance or repay a $4.5 billion loan from state bank VEB.
The VEB loan, which comes due on October 29, 2010, was one of the key concerns cited by Hong Kong authorities when examining the IPO proposal. RUSAL said it would seek to extend it or ask state-run Sberbank to assume the debt.
VEB, which has pledged to buy about one third of the shares on offer at the IPO, has security over RUSAL's stake in Russian miner Norilsk Nickel . As of December 17, 2009, the stake was worth 51 percent more than the debt owed to VEB.
VISAS, COURT CASE
As aluminum prices have rebounded from seven-year lows in February, so too have RUSAL's fortunes. The company forecast a full-year 2009 profit of at least $434 million.
Aluminum on the London Metal Exchange averaged $1,474 a ton in the first half of 2009 versus $2,895 in the same period last year. In the second half of 2009, the metal -- used in construction, cars and packaging -- averaged $1,942.
RUSAL's 2008 revenues were $15.69 billion, up over $2 billion from the previous year. Revenues by mid-year 2009 were $3.76 billion, compared with $8.35 billion a year earlier.
The prospectus also addressed issues surrounding Deripaska, who confirmed he had been denied a U.S. visa on several occasions but had subsequently visited the country, most recently in August and October 2009.
RUSAL said Deripaska, its chief executive, had informed the company he was not, to the best of his knowledge, under investigation by any U.S. authority.
Deripaska also said he strongly denies and will vigorously resist claims by Michael Cherney, who has brought a London court case against his former associate related to payment for his interest in aluminum assets now controlled by UC RUSAL.
While Deripaska opposes the claim, UC RUSAL acknowledged its majority owner's influence would be significantly reduced should he lose the case and use UC RUSAL shares to fund the payment.
Deripaska's En+ Group owns 53.35 percent of UC RUSAL and its share is expected to drop to 47.59 percent after the IPO.
UC RUSAL plans to start pre-marketing of the IPO on January 5, with a roadshow starting on January 11 and pricing on January 21-22.
BNP Paribas and Credit Suisse are the joint sponsors and global coordinators.
The joint bookrunners are BofA-Merrill , BOCI, Nomura Holdings <8604.T>, Renassiance Capital, Sberbank and VTB Capital, with Rothschild acting as the financial advisor.
BNP, with exposure of around $415 million, is another of UC RUSAL's creditors. Calyon has around $507 million of exposure, Societe Generale around $401 million and Sberbank $822 million.
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(Additional reporting by Don Durfee and Kennix Chim in Hong Kong, Polina Devitt in Moscow)
(Editing by David Cowell)