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Metal prices bring Rusal more challenges

In mid-2013, Rusal had its lowest net debt level since 2008: less than $10 billion, Oleg Mukhamedshin, deputy CEO, tells Euromoney. He says the firm hopes to reduce debt further – from six times ebitda – via internal cashflow, dividends from Norilsk Nickel, assets disposals and new equity issuance.

Mukhamedshin – who oversaw Rusal’s $16.6 billion 2009 debt restructuring and its 2010 IPO – concedes that raising capital via the stock exchange is clearly "not yet an option in the current market environment", even if Rusal is the world’s largest aluminium company by production (95% of which is in Russia).

Oleg Deripaska, Rusal’s billionaire chief executive and controlling shareholder, agreed a deal in December with other shareholders in Russia-based Norilsk Nickel, whereby Norilsk Nickel is expected to pay annual dividends of $3 billion for 2013 and 2014 and 50% of ebitda thereafter.

Rusal’s 2008 purchase of its 27.8% stake in Norilsk Nickel, the world’s largest nickel and palladium producer, was to an extent the root of its subsequent debt troubles. Now, Mukhamedshin says, Rusal is considering ways to monetize the dividend flows from Norilsk Nickel to repay debt.

But Mukhamedshin acknowledges that the impact of lower metals prices on Rusal’s cashflow means the ability to bring debt down further is much reduced. "We reduce debt further when prices are high," he says. "When prices are low, we maintain the same level of debt."

Part of the price problem is that 30% of global aluminium production at mid-2013 prices is loss-making, according to Mukhamedshin: Chinese producers, for example, enjoy electricity subsidized by local governments, among other benefits.

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