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Monday, September 29, 2008

Russian Market Opens Down, Norilsk Nickel battle takes centre stage

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Russian markets opened slightly softer this morning, lead by oil and gas producers as the price of oil fell around $3/barrel to $103/barrel.  Gazprom and Lukoil fell 0.7% and 1.5% respectively.  However, not all natural resource focused companies fell. Polyus gold climbed almost 5% in trading, while Norilsk Nickel climbed 3.45%.  Overall, commentators expected the Russian markets to be relatively calm today.  “The market is tired from the negative events, and a further decline is unlikely. On the other hand the marker is very weak and there are few reasons to buy,” said UMIS analyst Dmitry Makeyev.


Norilsk Nickel’s conflict between its two biggest shareholders – Interros of Vladimir Potanin and Rusal of Oleg Deripaska - continued to dominant headlines in Russia.  


Late on Sunday evening, Norilsk Nickel announced that three of its subsidiaries may purchase up to 8.6% of its stock.  Two of the subsidiaries, Norilsky Combine and Kolskaya GMK, placed approximately 20.64 billion roubles in Rosbank, while a third subsidiary, OGK-3, “has a right” to place up to 22 billion roubles with “other financial structures”.  The cumulative amount of 42.64 billion roubles (US$1.7 billion) would be used to acquire 16.5 million shares in Norilsk Nickel.   All three of the subsidiaries are believed to be under the control of Vladimir Potanin’s Interros, and as such, any transaction would effectively increase its interest to a controlling stake.


Rusal called the move “a flagrant violation of the rights of minority shareholders”.  Interros has essentially moved to increase its stake in Norilsk Nickel without making an obligatory offer to buy out the remaining shareholders.


It was also not clear who Interros would get the stock from, or why it had apparently managed to pick up the stock at a 30% discount to the market.  Nor did Norilsk Nickel confirm that the share purchase was complete.


A source close to shareholders of the company said that “partly the shares have been bought out”.
On September 17th and 18th around 8% of Norilsk Nickel was resold in the market at a value of nearly 60 billion roubles.


Norilsk Nickel emphasized that deal could be carried out without an agreement from its shareholders, “In accordance with the Russian legislation and the regulations of Norilsk Nickel the regulatory bodies of Norilsk Nickel, including the board of directors, are not obliged to consider and haven’t considered an approval of the said operations”. Norilsk Nickel added that the decision on the investment of the capital into shares was made by “the trustees in their discretion” while the regulatory bodies of the subsidiaries had approved it “in accordance with their regulations”.


So, Norilsk Nickel has apparently snapped up 8.6% of its shares without any shareholder meeting.  
According to information in the public domain, Interros already holds 29.87% shares of Norilsk Nickel. However a number of sources familiar with a situation believe that Mr. Potanin actually controls closer to 40% of Norilsk Nickel.


Rusal, for its part, insists that Interros must make an obligatory offer to minority shareholders.  The Federal Securities Commission Federation of Russia (‘FSFR’) has already begun to investigate the dispute.

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