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Russian equity: Rusal botches its IPO

The Russian aluminium company’s stock market debut seemed ill-fated from the start.

Dogged by controversy ever since Rusal announced its intention to list on the Hong Kong Stock Exchange, its IPO on January 27 floundered after launch. Its shares plunged more than 10% after the first day of trading as investors gave a thumbs down to the Russian aluminium producer.

This was an IPO that was a disaster in the making. Two previous attempts to list were abandoned. The latest attempt was originally slated to launch before Christmas after Rusal signed off on a restructuring of its $14.9 billion of debt at the end of November. But the date was pushed back because Rusal had failed to fulfil several exchange conditions, including its profit requirement. The transaction was approved only after some hastily arranged compromises.

One of the issues that the HKSE was fretting about was a $4.5 billion loan from VEB, the Russian state bank, which is due in October. To appease the listing committee’s concerns Sberbank agreed to take on the loan and extend its maturity until 2013.

The IPO was then allowed to go through only if retail investors were shut out, as the company was deemed too risky. That move backfired: the shares, which were valued at a 15% premium to China’s Chalco and a 50% premium to the US’s Alcoa, tumbled within minutes of trading.

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