Andrew Osborn








Rusal Founder Keeps Low Profile --- Main Owner Avoids Focus on Past as Russian Aluminum Giant Readies IPO

The Wall Street Journal, 30th July 2007 11:56

By Andrew Osborn

Moscow -- Russian aluminum giant United Co. Rusal is preparing its public debut on international markets in unconventional style: by maintaining a wall of silence about the billionaire behind it.

Oleg Deripaska, a 39-year-old tycoon whose U.S. visa was withdrawn over questions about his past business dealings, owns two-thirds of Rusal, founded the company and previously acted as its chief executive. He plays a major role in a company that, through a series of big mergers, now rivals the West's biggest mining companies. When it conducts its initial public offering of a stake of as much as 25% in November, Rusal could raise $7.5 billion, an offering that would be among the largest IPOs and immediately make it one of Russia biggest companies by market value.

Yet Mr. Deripaska played no part last month in informal presentations in London, Frankfurt, New York and other financial centers designed to gauge interest ahead of its planned November listing on the London Stock Exchange. Bankers familiar with the company's plans say Mr. Deripaska is unlikely to participate in any pre-IPO pitches further down the line either.

Rusal is keen instead to promote its current CEO, Alexander Bulygin, as what spokeswoman Vera Kurochkina calls "a key strategic decision maker for the company." Through his Moscow-headquartered holding company, Basic Element, Mr. Deripaska declined to comment.

Rusal's approach demonstrates how Russian firms striving to gain international recognition are often keen to emphasize future plans but remain reluctant to discuss their frequently colorful corporate histories that date to Russia's anarchic 1990s. Flush with cash from the nation's fast-growing economy and the four-year boom in natural resources, Russian companies are eager to spend to extend their global reach.

Questions about their past have occasionally hindered that effort. Last year, lack of information about another Russian tycoon, Alexey Mordashov, contributed to the failure of the attempt by the Russian steel company he controls, OAO Severstal, to acquire steelmaker Arcelor SA. Since then, Severstal has gone public and Mr. Mordashov has increased transparency and outlined plans to build globally rather than embark on an acquisition spree. The moves have won Severstal greater respect in the industry and in the markets.

Mr. Bulygin, 38, hopes to earn such respect for Rusal. He was appointed CEO in March when the company merged with Russia's Sual Group and Switzerland's Glencore International AG and with almost 15 years of experience in the aluminum industry, he has worked closely with Mr Deripaska for years.

Fluent in English, Mr Bulygin says in an interview that he wants to transform Rusal from an aluminum maker into a company that produces a range of metals and embark on an ambitious program to expand the company's power sources into the nuclear sector.

Rusal faces growing competition for the top spot among aluminum makers. Rio Tinto PLC will become the world's largest by output when it completes its acquisition of Canada's Alcan Inc. Alcoa Inc. of the U.S., which after the Rio Tinto deal would be the No. 3 producer behind the newly merged entity and Rusal, is considered a potential acquisition candidate for another big mining company, such as Australia's BHP Billiton Ltd. or Brazil's Companhia Vale do Rio Doce. That could give it access to greater heft and resources. "Nobody can stand still or sleep," says Mr. Bulygin.

His plan to secure Rusal's future is therefore heavily contingent on a successful IPO. Analysts say investors are hungry to buy into a company whose main commodity is tipped to outperform other metals in the next year due to rising raw-material and energy costs. In an investor presentation reviewed by The Wall Street Journal, Rusal said it has combined sales of $13 billion last year and earnings before interest, taxation, depreciation and amortization of $5 billion.

Mr. Bulygin says Rusal will be one of the few left standing when global industry consolidation peters out. His strategy is to turn the company into a "multiminer" and a major producer of all the metals traded on the London Metal Exchange. "Rusal, similar to BHP Billiton Ltd., could be a base for all these metals," he said.

While Mr. Bulygin is promising to draw investors with good corporate governance and a multinational corporate culture, he is dogged by the question of whether he is really in charge and controversy surrounding Mr. Deripaska, who is a board member. While Mr Bulygin says he is responsible for day-to-day affairs, he says that Mr. Deripaska "plays a crucial role in the running and direction of the company."

Mr. Deripaska has for years fielded allegations that he has, or had, some connections with organized-crime groups, accusations he rejects as "propaganda" by business rivals. The State Department revoked the oligarch's entry visa last year amid concerns about the accuracy of statements he made in a meeting with the Federal Bureau of Investigation, according to U.S. officials familiar with the matter. He declined to comment on the matter.

Estimated to be the country's richest or second-richest person, with a fortune between $16.8 billion and $21 billion, Mr. Deripaska has President Vladimir Putin's ear and has cast himself as a modern-day version of John D. Rockefeller, albeit one who dons the mantle of a Russian patriot. Through his holding company Mr. Deripaska holds a wide range of investments and recently took a significant stake in Canada's Magna International Inc., an automobile-components supplier that unsuccessfully bid to acquire auto maker Chrysler Group.

Investors are closely studying Mr. Deripaska's role, as well as lingering lawsuits. In one, businessman Michael Cherney, who claims to be a former partner of Mr. Deripaska, is suing him in London for a 20% stake in Rusal that he alleges Mr. Deripaska was holding in trust for him. In the other, a Tajik aluminum firm has launched a lawsuit in the British Virgin Islands alleging that Rusal benefited from fraud at a plant it owns costing it hundreds of millions of dollars. Mr. Deripaska and Rusal reject both claims as "baseless."

Karina Litvack, of London-based asset manager F&C Investments, says her fund has yet to take a view but will be looking into litigation risks carefully when the time comes. Mr. Bulygin suggests Mr. Deripaska is a victim of his own success. "People in any walk of life -- be it business, sport or even religion -- who rise to the top always attract admirers and detractors and he is no different in that respect."

Morgan Stanley, Deutsche Bank AG, and J.P. Morgan Chase &Co. have been appointed as global coordinators of Rusal's IPO, according to a person familiar with the matter. UBS AG, Credit Suisse Group and Goldman Sachs Group Inc. have been given supporting roles, this person said.


Paul Glader in Pittsburgh contributed to this article.