Russian billionaire Viktor Vekselberg's investment firm has launched legal action over a $47 billion (29 billion pounds) supply deal struck between aluminium giant UC RUSAL <0486.HK> and commodities trader Glencore
The initiation of arbitration proceedings in London escalates a shareholder feud between Vekselberg, who resigned as RUSAL chairman last month, and the company's chief executive and main owner, Oleg Deripaska.
The source, who is close to a RUSAL shareholder, said Sual Partners, which is co-owned by Vekselberg and partner Len Blavatnik, will argue that the supply deal was agreed in violation of its right of veto. Sual owns 15.8 percent of RUSAL.
The case will go before the London Court of International Arbitration (LCIA), a disputes resolution forum provided for in the RUSAL shareholders' agreement.
It is being brought against RUSAL, Glencore, Deripaska and his holding company En+, through which Deripaska owns 47.4 percent of RUSAL. Glencore owns an 8.75 percent stake in RUSAL.
The filing relates to a dispute between the shareholders of UC RUSAL that arose due to the improper approval of long-term contracts for the supply of primary aluminium and alumina between UC RUSAL and Glencore totalling more than $47 billion, the source added.
Under the six-year deal, Glencore would raise the share of RUSAL's output that it markets to 50 percent from 30 percent this year, the source has said. Deripaska confirmed the deal was approved in December but given no details.
Sual, RUSAL, EN+ and Glencore all declined official comment.
A source close to another RUSAL shareholder said: The dispute is, by its nature, between shareholders and there is no proper basis whatsoever for making any claims against RUSAL.
Sual's legal action follows a falling out between Deripaska and RUSAL minority shareholders led by Vekselberg who have been angered by his refusal to sell the company's stake in Arctic miner Norilsk Nickel
RUSAL, the world's largest aluminium producer, bought the one-quarter stake in Norilsk at the top of the market in 2008 for an estimated $14 billion, but Deripaska's hopes of merging the two firms were dashed by the global financial crisis.
Vekselberg had supported offers by Norilsk over the past year and a half to buy back the stake for as much as $13 billion, in a step that would have helped RUSAL clear its $11 billion debt burden.
He was consistently opposed by Deripaska, leaving RUSAL nursing paper losses on the stake, which is now worth around $9 billion.
While not directly related to the dispute regarding the Norilsk stake, Sual's legal action also indicates Vekselberg's frustration that his views were not accounted for in signing a major new supply deal with Glencore at the end of last year.
Sual Partners will seek to halt the contracts, have them recognised as null and void, and will seek compensation and a sum to reflect wrongful enrichment, the first source said.
The source did not say how large an arbitration settlement Sual was seeking. Under the LCIA's rules it is required to respond to arbitration requests within 30 days. In the event of a favourable response, a tribunal can be formed to review the case. Proceedings are typically lengthy.
RUSAL's aluminium output fell by 1 percent in 2011 to 4.1 million tonnes, while its alumina production rose 4 percent to 8.2 million tonnes. Under the supply deal, Glencore is expected to market 1.4 million tonnes of RUSAL aluminium in 2012.
The company has not given any production forecasts, but has said it may take up to 6 percent of its capacity off the market in the next 18 months in response to weak demand conditions for the light metal used in drinks cans, cars and construction.
A cyclical downturn in aluminium prices and shareholder frictions have led RUSAL's Hong Kong-listed shares to slide by around 60 percent since their peak last April.
RUSAL floated its stock in Hong Kong at HK$10.80 apiece in early 2010. Its shares closed down 0.9 at HK$5.76 earlier on Thursday.
(Reporting by Clara Ferreira-Marques and Polina Devitt, Editing by Douglas Busvine and Keiron Henderson)