By Scott Patterson
New U.S. sanctions are causing fresh economic pain for Moscow,
but have also ensnarled a handful of Western firms with deep roots
in Russia.
Glencore PLC said Chief Executive Ivan Glasenberg had resigned
as a director of United Co. Rusal, which made Washington's
sanctions list last week. Glencore owns a nearly 9% stake in the
firm. The Swiss commodities giant said Tuesday it was committed to
complying with sanctions and mitigating risks to its business from
them.
Glencore also said it was halting a previously agreed plan to
exchange Rusal shares for equity in London-listed En+ Group
PLC.
Both Rusal and En+ are primarily owned by Oleg Deripaska. Mr.
Deripaska and En+ were also named in Friday's sanctions list.
It isn't clear what Glencore will do with its Rusal stake, which
was worth just shy of $1 billion at the end of 2017. On Monday,
Rusal's Hong Kong-listed shares fells more than 50% amid investor
worry about the effect of the sanctions on Rusal's contracts. Those
shares were down a further 9% Tuesday.
The new sanctions have rocked Russian financial markets this
week. The ruble and stock market fell sharply Monday, with the
Russian currency extending losses Tuesday.
They have also sent some Western firms with Russian business
ties scrambling to assess their exposure to any further scrutiny
from Washington.
Years of U.S. and allied sanctions have already sharply curbed
Western investment in Russia. However, Friday's measures took
direct aim at a group of businesses and their owners that had long
been viewed as relatively safe bets.
Take Mr. Deripaska: Viewed by outside observers as a close ally
to Russian President Vladimir Putin, he has been a potential target
for sanctions for years. However, he and his companies have
exhibited a measure of global engagement and financial
transparency, with an international shareholder and customer base
that has helped western partners view them as relatively safe
despite the sanctions risk--until now.
A representative of Mr. Deripaska told Russian news agencies on
Friday that his inclusion on the sanctions list was "baseless,
ridiculous and absurd."
Another target of the new sanctions was Viktor Vekselberg, head
of a large Russian conglomerate, Renova Group, which has deep
business ties across Switzerland. Mr. Vekselberg isn't seen as
particularly close to Mr. Putin, surprising some Russia watchers
and underscoring the uncertainty over who might be next should
Washington continue to target Moscow. Mr. Vekselberg wasn't
reachable for comment.
Over the weekend, Swiss engineer Sulzer AG agreed to buy back
shares from Renova Holdings, which also appeared on the sanctions
list. The company said it had bought enough shares to bring
Renova's ownership stake to under 50%.
Sulzer said it believed its stock purchase would "assuage" any
concerns about the independence of the company in light of the
sanctions. Nonetheless, shares in Sulzer have fallen by about 15%
from Friday's close.
OC Oerlikon, another Swiss engineering firm, said Monday that
Mr. Vekselberg's ownership stake in it was only 43%--below the 50%
threshold that it said would restrict U.S. citizens from investing
in or doing business with it. Oerlikon shares have fallen by about
5% over the last two days.
Investors have fled other Russian firms that haven't been
specifically targeted, partly because of the new uncertainty over
whether they might end up in Washington's crosshairs. American
depositary receipts in energy producers Gazprom PJSC and Lukoil
PJSC both fell sharply this week.
Global depositary receipts in PAO Rosneft, Russia's biggest oil
producer, were also down steeply this week. It hasn't been
specifically targeted by sanctions, although the company's boss,
Igor Sechin, a close Putin ally, has since 2014. That has
restricted executives at BP PLC, which owns 19.8% of Rosneft, in
how they interact with him. Chief Executive Bob Dudley remains a
board member at Rosneft.
"The company ensures it complies with all applicable sanctions,"
a BP spokesman said.
Glencore, though, has been at the center of the financial storm
stemming from the most recent U.S. sanctions. Mr. Glasenberg has
been a board member of Rusal since 2007, soon after Glencore agreed
to sell its alumina assets to Mr. Deripaska's company. That helped
make the Russian firm the world's biggest producer of the metal at
the time, topping U.S. giant Alcoa Corp. It has recently been
usurped by a Chinese producer.
Mr. Glasenberg leveraged Glencore's ties to Rusal to become its
biggest aluminum customer--and one of the world's biggest traders
of the metal. Glencore purchased $2.4 billion worth of the Russian
company's metal in 2017, according to Rusal's corporate
filings.
Glencore has a long history of doing business in Russia. Marc
Rich, the financier who started the company that went on to become
Glencore, bartered Russian oil for Cuban sugar in the early
post-Soviet period. More recently, Glencore has been a central
player in brokering the sale of a stake in Rosneft to a Chinese
energy company.
Glencore said it was evaluating contracts with Rusal for the
purchase of aluminum and alumina but said they aren't financially
material to the company.
Analysts have noted Glencore enjoys some hedges against its
Russian exposure. Its Rusal stake, for instance, isn't huge. If the
stock-market value of the stake was entirely wiped out, it would
account for just about 1.3% of Glencore's market value, according
to Sanford C. Bernstein analyst Paul Gait.
Mr. Gait also points to Glencore's 47.5% stake in U.S. aluminum
producer Century Aluminum Co., whose shares rose 12% Monday.
Investors are betting it could benefit if it pulls customers away
from Rusal in light of the sanctions.
James Marson
in Moscow and Brian Blackstone in Zurich contributed to this
article.
Write to Scott Patterson at scott.patterson@wsj.com
(END) Dow Jones Newswires
April 10, 2018 08:32 ET (12:32 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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