HONG KONG/LONDON - Russia's UC RUSAL, the world's largest aluminum producer, raised $2.2 billion through its initial public offering and brought the debt-burdened company a step closer to being the first non-Asian firm to have a primary listing in Hong Kong.

The IPO will help RUSAL pay back part of $16.8 billion in borrowed money and allow the Hong Kong Stock Exchange to attract more foreign companies from outside Asia.

RUSAL has received heavy scrutiny from Hong Kong's financial regulators, thanks to the company's debt load, outsider status and controversial founder, Russian billionaire Oleg Deripaska.

The IPO priced at the middle of an indicated range, two sources familiar with the deal said on Friday, a sign that may show that demand wasn't strong enough to hit the top end.

Still, given RUSAL's debt load and the other risks, the price shows that institutions were willing to back the IPO.

Even though it's high risk, institutional investors invested in the IPO because it's the first Russian company to list in Hong Kong, and because they see further upside to aluminum prices this year, said Steven Leung, director of institutional sales at UOB-Kay Hian.

RUSAL chose Hong Kong in part because the company's main growth market for aluminum is in China and the ability to tap a new class of investor there.

So far, Russian companies have taken the HKEx's bait. On Thursday, a top executive from Russian Railways, the country's large, government-run rail operator, said it was eyeing to list various units on HKEx.

Hong Kong produced more than $30 billion worth of IPO proceeds last year, more than any other exchange globally.

RUSAL sold 1.61 billion new shares, or just under 11 percent of its enlarged share capital, at HK$10.80 each, the sources told Reuters. The IPO's indicated price range was HK$9.10 to HK$12.50.

The large chunk of $16.8 billion in borrowed money is owed to VEB, the Russian government's financial vehicle whose supervisory council is chaired by Prime Minister Vladimir Putin. RUSAL's overall value is around $26 billion.

UC RUSAL will also list shares in Paris in the form of Global Depositary Shares (GDSs). The offer price per GDS is US$28.08 or EUR 19.91, with each GDS representing 20 ordinary shares.

The offer price of HK$10.80 values the company at 12 times EV/EBITDA -- a measure of cash flow, according to London-based Independent International Investment Research.

By comparison, peers Aluminium corp of China (Chalco) trades at 11.2 times 2010 basis EV/EBITDA, while U.S.-based Alcoa trades at 11 times, according to a Merrill Lynch research report.

One source close to the deal said the recent drop in Chalco shares had given some investors hesitation when considering RUSAL's final IPO price. Chalco's Hong Kong shares have fallen about 15 percent since January 11.

All sources quoted in the story declined to be identified because they were not allowed to speak publicly about the deal.

RUSAL's trading debut is set for January 27, under the symbol 486. Assuming the company exercises the overallotment the company will increase the size of the IPO to $2.56 billion.


Hong Kong's financial regulators are aware that hosting companies from abroad entails risks, especially from industries the listing committee is generally unfamiliar with.

Another issue surrounding the offering is Deripaska himself, whose oligarch status and visa issues with the United States has brought added attention to the company and the IPO.

Fundamentally speaking, investors should avoid buying into RUSAL, as it bears the huge debt burden and in terms of valuation, it is expensive. Investors have plenty of choice from the market after the recent correction of the stock market, said Y.K. Chan, a strategist at Phillip Capital Management.

The IPO was eventually blocked from retail investors as a precaution, although some of the risk was reduced on Thursday when Russian lenders Sberbank and VEB agreed to refinance a $4.5 billion loan due on October 29.

Since the deal became a play for big institutional investors, who cornered most of the shares, analysts expect its trading debut on January 27 to display a good performance.

But the recent stock market sell off in Hong Kong could send RUSAL's shares lower on its debut.

Around 40 percent of the offering had already been subscribed by cornerstone investors, including Nathaniel Rothschild's company, U.S. hedge fund Paulson & Co, Malaysian-Chinese businessman Robert Kuok Hock Nien and Russian state bank VEB, with a lock-up period of six months.

Cheung Kong Holdings, the Hong Kong property group controlled by Asia's richest man, Li Ka-shing, is investing $100 million in RUSAL. One of the sources said the IPO attracted more than 300 institutional investors.

The deal failed to attract two of Asia's most influential sovereign wealth funds, China Investment Corp (CIC) and Singapore's Temasek Holdings, which manage a combined $420 billion.

RUSAL revealed a $868 million net loss for the six months ended June 30, 2009, versus a year-earlier profit of $1.41 billion. The company has said growth in aluminum prices will be crucial to recovery.

The price of aluminum has risen nearly 80 percent since trading at a seven-year low in February 2009, mirroring the world's recovery from the financial crisis.

BNP Paribas and Credit Suisse are the joint sponsors and global coordinators. The joint bookrunners are BofA-Merrill Lynch, BOC International, Nomura Holdings, Renaissance Capital, Sberbank and VTB Capital, with Rothschild acting as the financial adviser.

(Additional reporting from John Bowker and Robin Paxton in Moscow)

(Editing by Michael Flaherty and Jean Yoon)