Russian duo cut stake in UC Rusal

Through an aftermarket block sale, Russian tycoons Mikhail Prokhorov and Viktor Vekselberg raised $315 million through selling a 3% stake in UC Rusal – an uncommon name in Hong Kong’s ECM market.
Russian tycoon Mikhail Prokhorov sold his stake in UC Rusal twice within nine months.
Russian tycoon Mikhail Prokhorov sold his stake in UC Rusal twice within nine months.

Hong Kong’s equity capital market welcomed an unusual guest on Tuesday after two UC Rusal shareholders sold a block of shares in the Russian aluminum producer for HK$2.5 billion ($315 million) via an accelerated bookbuild.

The Reg S/144A deal marks only the second capital market transaction for the Russian company since it was listed in Hong Kong in 2009.

In February this year, Russian tycoon Mikhail Prokhorov – best known as the owner of Onexim Group and NBA team Brooklyn Nets – sold a 3.3% stake in UC Rusal for $240 million through an after-market block sale.

This time around, Prokhorov is joining fellow countryman Viktor Vekselberg, owner of Russian energy-to-telecom conglomerate Renova Group, to sell a combined stake of 3% in the world’s second-biggest aluminum producer.

Unlike in regular block trades in Hong Kong, joint bookrunners Goldman Sachs and Russia’s Renaissance Capital had not provided any price guidance on the trade at the beginning of the bookbuilding process. 

Sources familiar with the situation said the move was intended to allow more flexibility for the sellers on pricing since the shares are highly illiquid.

UC Rusal’s average daily trading value stood at around $12.5 million over the last three months, only slightly more than 0.1% of its $11.5 billion market capitalisation.

Meanwhile, the 456 million shares on sale were equivalent to over 28 times the stock’s three-month average volume of 16.2 million shares, suggesting that it was a large deal for the market to digest.

Without a proper price guidance, some investors have turned to the February share sale for clues on where the bids should be placed. At that time, UC Rusal shares were sold at HK$3.7 each, or a 9.54% discount to the stock's last close.

For Tuesday’s deal, banking sources said the final book was well oversubscribed and the offer price was settled at HK$5.4 per share, representing a discount of 7.5% to UC Rusal’s HK$5.84 Tuesday close. The sellers should be pleased with the final outcome because they were able to strike a bigger deal at a tighter discount to February’s trade.

Interestingly, the transaction was launched just days after EN+ Group, UC Rusal’s parent company owned by billionaire Oleg Deripaska, announced its intention to float its shares via a dual listing in Moscow and London.

The plan is unlikely to have any immediate impact on UC Rusal’s share price in the short term. However, UC Rusal could become less attractive after the listing of its parent because the holding company is often valued cheaper than its fair value, after accounting for what is commonly known as the conglomerate discount.

After Tuesday’s share sale, Prokhorov will have a 3.7% stake in UC Rusal through Onexim Group. Vekselberg will own an indirect stake of about 13.5% through his investment company Sual Partners.

The sellers are subject to a 90-day lockup on their remaining UC Rusal shares.

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