Russian aluminium producer Rusal has been forced to postpone its planned initial public offering in Hong Kong until next year after sources said the Hong Kong stock exchange felt it needed more time to review the company's listing application. The IPO was expected to raise about $2 billion and include a listing in both Hong Kong and Paris.
Rusal had been hoping to secure a listing approval following its second hearing with the stock exchange's listing committee on Monday and had drawn up a compressed marketing plan that would see it launch an institutional roadshow today with the aim of having its shares start trading on December 23. That will not happen now and means that China Pacific Insurance (CIPC), which kicked off an IPO of up to $3.55 billion on Monday, will likely be the last multi-billion dollar listing in Hong Kong this year.
Given the limited time left before the holidays, one could argue that Rusal may be better off to delay the listing, as that will make the process less rushed and allow more investors to take a proper look at the company. It will also give it more time to secure long-term cornerstone investors. Various media have reported that Rusal has been trying sign up investors such as China Investment Corp, the nation's sovereign wealth fund, and Singapore's Temasek Holding. And with aluminium prices currently on the rise, a later listing could potentially result in a higher valuation.
However, there is no doubt that the delay is a disappointment for the company and its controlling shareholder, industrial magnate Oleg Deripaska, who is hard-pressed to raise new capital to help repay part of its huge debt burden. The current positive sentiment for IPOs in Hong Kong that has allowed more than 25 companies to go public in the past three months, coupled with the recovery in commodities prices, would have seemed like a listing opportunity that shouldn't be missed. Rusal is keen to list in Hong Kong as it sees the city as a good base from which to tap the potentially huge customer base in China. Demand for aluminium in China remains strong, and has been further fuelled by the government's $585 billion stimulus package that is largely focused on infrastructure and construction.
Rusal's intention to increase its focus on China was further underlined yesterday as the company said it has appointed Hong Kong's Elsie Leung and Barry Cheung as independent non-executive directors to its board. Leung is a former secretary for justice and former member of the Hong Kong government's executive council and has been the deputy director of the Basic Law Committee of The HKSAR of the Standing Committee of China's National People's Congress since 2006.
Cheung is chairman of the Hong Kong Mercantile Exchange and sits on a number of Hong Kong committees and boards, including the Urban Renewal Authority where he serves as chairman of the board.
"Given Rusal's long-term strategic interest in China and the wider Asian region, we have been looking for directors who have direct experience in these markets to give us advice and Ms Leung and Mr Cheung are ideal choices for the board," Deripaska said in a written statement. "They have extensive and diverse experience in the region. Ms Leung has a strong legal background and Mr Cheung is an expert and pioneer in the Asian commodities and trading community. Their expertise will be of great value to the board in helping the group uphold the highest corporate governance standards and grow its business."
Assuming it obtains the necessary approvals from the Hong Kong stock exchange, Rusal can in theory pursue a listing in January, and include end-September financials in its listing documentation. In practice, however, once they have missed the end of December cut-off, most large companies choose to update their financials with December numbers. This gives them the flexibility to come to market at any time before the end of June, but typically also means that they won't be able to approach investors until March at the earliest as the auditing of the financials takes time. And who knows what the capital markets will look like by then?
The caution applied by the listing committee it quite understandable since Rusal would be the first Russian company to list in Hong Kong. Hong Kong Exchanges and Clearing, which owns and operates the local exchange, has been on a huge drive in recent years to try and attract companies from countries other than China to list there. So far it has made limited progress, and to snatch Rusal, the world's largest producer of both aluminium and alumina, from the jaws of the London Stock Exchange, which is seen as the natural home away from home for Russian companies, would be something of a coup. However, the Hong Kong exchange cannot afford to get it wrong and given Rusal's recent financial troubles, it would want to make sure that the listing documentation covers all angles and, of course, that the company is sound enough to sell to local retail investors.
Rusal went for a first listing hearing in late November, but was told the committee needed more time to go over the documentation.
The company's chances for an approval improved substantially last week when it finally got its more than 70 domestic and foreign creditors to agree to a comprehensive restructuring of its $16.8 billion debt. However, it may take the members of the listing committee some time to get through the restructuring documentation, which includes more than 50 credit agreements,
Of Rusal's total debt, $7.4 billion is owned to foreign lenders. According to a press release issued at the time of the restructuring agreement, Rusal has periodic debt reduction targets in place and will seek to repay a total of $5 billion of debt owed to all lenders by the fourth quarter of 2013.
Rusal took on most of this debt when it acquired Russia's biggest mining company, OAO GMK Norilsk Nickel, a couple of years ago. When the financial crisis hit and commodity prices collapsed, it found itself unable to meet its interest payments.
The Russian company is being brought to the Hong Kong market by Bank of America Merrill Lynch, BNP Paribas, BOC International, Credit Suisse and VTB Capital, a unit of Russia's Vnesheconombank.