Sanctions Expected To Prevent Rusal From Servicing Eurobond

By Katya Golubkova, Polina Devitt and Oksana Kobzeva

MOSCOW, April 10 (Reuters) - Rusal, the world's second largest aluminium producer, is unlikely to be able to pay a Eurobond coupon in May as a result of U.S. sanctions imposed on the Russian company last week, investors and analysts said.

Almost all of Rusal's $7.6 billion debt is dollar-denominated, making it difficult for the company to make repayments since the sanctions effectively cut off its access to the U.S. banking system and correspondent banks and creditors.

Rusal's co-owner Deripaska and a number of companies in his empire were added to a U.S. sanctions black-list to punish Moscow for its alleged meddling in the 2016 U.S. election and other "malign activity."

"Rusal can't pay in U.S. dollars and will face a technical default, even if they have cash. Because as soon as the payment is to be transferred, the U.S. bank will block that payment," a lawyer working with the sanctioned companies told Reuters.

The sanctions "may result in technical defaults in relation to certain credit obligations of the group, and the company is currently evaluating the impact (if any) of such technical defaults on the financial position," Rusal said.

Rusal, which declined to comment, had a free cash flow of $993 million at the end of last year, is facing annual debt repayments of $600 million to 2020 and is due to pay the first coupon since sanctions on a $500 million Eurobond maturing in 2023 on May 3.

The company, which is 48 percent-owned by Deripaska's En+ Group, has two more coupons due on Aug 1 and 2 on another $500 million bond and a $600 million Eurobond, respectively.

"The company intends to continue to fulfil its existing commitments in accordance with applicable legal and regulatory requirements," Rusal said on Monday.

Sberbank and VTB, which both declined to comment, are the principal lenders to En+ and Rusal and some of Deripaska's assets are collateralised at these banks.

"They won't be able to service the coupon not because of lack of cash or willingness to pay but because they will not be able to access the payment system, they will not be in a position to make payments," Paul Greer, assistant portfolio manager at Fidelity International in London, said.

Rusal said on Monday that the U.S. Treasury issued two general licenses in connection with the sanctions authorising U.S. persons to engage in certain limited activities and transactions involving Rusal or its subsidiaries.

If Deripaska has to sell assets, Halazy.Com the only one that is disposable and not covered by sanctions is a 27.8 percent stake in Norilsk Nickel, which he owns via Rusal and is worth around $6.9 billion, according to Reuters calculations.

But he is fighting for control of Nornickel with co-owner Vladimir Potanin, who owns a 30.4 percent stake, and the situation is complicated by a court battle.

The U.S. Treasury Department said investors have until May 7 to divest any stocks, bonds or other holdings of En+, GAZ and Rusal. For the 12 companies named on Friday, any contracts and activities must be terminated within 60 days.

In its latest presentation, Rusal says 18 percent of its total sales by volume were to the Americas, 45 percent to Europe and 19 percent to Asia, as of the last quarter of 2017.

Raiffeisenbank said in a note on Monday that the new sanctions are likely to force Rusal to redirect supplies, potentially affecting the company's margins.

Rusal shares in Moscow were up 2 percent on Tuesday, after hitting all-times low on Monday. ($1 = 6.2793 Chinese yuan renminbi) (Additional reporting by Alasdair Pal, Sujata Rao and Pratima Desai in LONDON, Oksana Kobzeva, Gleb Stolyarov, Anastasia Lyrchikova in MOSCOW Editing by Polina Devitt and Alexander Smith)


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