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Home / Business / RPT-INSIGHT-Inside Deripaska's attempt to mitigate Russia's sanctions

RPT-INSIGHT-Inside Deripaska's attempt to mitigate Russia's sanctions



(Repeats the story of Monday without changes to the text)

* Russia's Deripaska took steps to prepare for sanctions – sources

* Advisers floated various sanction scenarios – sources

* Prospects of sanctions against companies caused "cold Sweat "- Source

By Polina Devitt, Dmitry Zhdannikov and Julia Payne

MOSCOW / LONDON, April 23 (Reuters) – In December, when news of possible new US sanctions against Russia appeared, aluminum magnate Oleg Deripaska commissioned consultants Create emergency plans, according to people who are close to the businessman and his companies.

Almost 100 executives, lawyers and staff working for the Russian Tycoon met almost weekly to develop a game plan for various sanction scenarios, people said.

They even took preventative measures to mitigate the impact of sanctions, including the conversion of most dollar payments and loans from Deripaska's En + Group PLC into euros and pounds, as well as the plan to replace US equipment suppliers with European ones According to people involved in the planning.

But they came to the conclusion that there was a scenario so severe that they could do little if it came to that: the toughest sanctions were applied to his business empire, not just Deripaska himself.

"The people in the room had a cold sweat," they said when this scenario was mentioned. "You can not prepare for it."

Washington chose this scenario. On 6 April, it announced sanctions against Deripaska and its eight companies, as well as other Russian individuals and companies referred to by the US as "malicious activities" of Russia.

By adding Deripaska's company to the "Specially Designated Nationals" blacklist ̵

1; the first time Washington did so with a listed Russian firm – the US effectively stifled its access to the international financial system.

The movement has sent reverberations around the world. Deripaska's business empire – which includes the United Company Rusal PLC, the world's second largest aluminum producer by volume – has a global presence and counts large international companies among its customers.

The magnitude of the impact demonstrates US power over the global financial system through the dollar clearing process.

Rusal, the largest part of the Deripaska empire, has seen customers stop buying their aluminum and lenders to dump debts. Hong Kong-listed Rusal lost more than 60 percent of its share value. Deripaska's En + Group PLC, which owns part of Rusal and supplies power and coal, has also more than halved its London-listed shares.

Deripaska called the sanctions "very unfortunate but not unexpected". He added that his inclusion in the list was "baseless, ridiculous and absurd".

Deripaska spokeswoman declined to comment.

Rusal has said his inclusion on the sanction list could make him unable to pay the billions of dollars he owes to his lenders – some of the leading Western and Asian banks.

On Monday, the United States opened the door to sanction relief for Rusal when the Ministry of Finance said in a statement that it could mitigate the measures if Deripaska relinquished control of the company.

The Ministry of Finance said its goal was to help companies around the world rely heavily on supplies from Rusal.

The news sent shares in Rusal more than 13 percent in Moscow, but they remain well below pre-sanctions.

"ROAD BLOCK"

The December team consisted of about a dozen top executives-including financial, legal, and human resources executives-and staff discussing opportunities such as the impact of sanctions Rusal can be alleviated. A similar team gathered to focus on En +, according to the people who were familiar with the planning.

The groups met in their separate Moscow offices and regularly gave Deripaska personally and by e-mail, people said.

The main concern was that harsh sanctions against Deripaska's businesses would prevent Western banks and clearing houses from interacting with them, which would affect everything from debt hikes to global market sales.

Deripaska took preventative steps. In February, the billionaire announced his retirement from executive positions at En + and Rusal.

Hope, according to one source close to Rusal, was that it would protect companies from sanctions, even if it were listed on its own.

Deripaska made other changes from the public. In a previously unreported move, En + had reposted most of its dollar payments and loans in euros and pounds by March, according to a person familiar with En +'s preparations.

This means that the company can service its debts and receive payments that would otherwise have been discontinued if they had remained denominated in dollars.

Another key concern was the impact of sanctions on equipment suppliers for Deripaska's companies, as tough sanctions against its companies would prohibit US companies from doing business with them.

En +'s advisory team set up a plan to reduce exposure to US-based turbine suppliers such as General Electric and gradually replace them with European companies, said the person familiar with En + preparations.

"But we've hit a roadblock on a number of other issues," the person said.

He cited a failed attempt to rein in finding a non-US bank that acts as custodian of En +'s London-listed shares, known as Global Depository Receipts or GDRs, as part of Citigroup Inc.

We EU banks, banks in Hong Kong, even tried an Israeli bank – but as soon as we mentioned possible sanctions, there was nowhere to go, "said the person familiar with the preparations of En +, without mentioning the banks.

" All Transactions are carried out on the dollar and no-one wanted to run the risk of being cut off from dollar clearing. "

The person who added the En + group was also locked in moving trade in their GDRs from London to Moscow would be a new flotation to accomplish this.

"We simply did not have time," the person said.

When the sanctions were announced in April, Citigroup suspended the custodian for GDRs at En +, all transactions. This move angered investors because US citizens must withdraw from stocks, bonds or other holdings in the target companies by 7 May.

A few days later, Citigroup told En + that it was doing business again with its GDRs. according to a statement by En +. Citigroup declined to comment.

However, according to the person familiar with En +'s preparations, owners of En + GDRs were unable to sell because the designated clearing house Euroclear does not handle the transactions, ie when cash and securities are traded.

Belgium-based Euroclear declined to comment.

LESS OPTIONS

The Ralls Contingency team felt that it had fewer options than its En + counterparts, as the metal producer had a much larger share of the debt and contracts in dollars due to the nature of the aluminum market, said three people near Rusal.

One of these people also said that the aluminum company was not well prepared for the toughest sanctions because Deripaska and the emergency team believed the United States would not want to disturb the aluminum markets and the US did not impose sanctions on a publicly traded Russian company ,

Rusal had no plan to seek immediate help from the Russian government to help refinance debt or pay employees, according to the three sources near Rusal.

Russia's Minister of Industry and Trade told reporters last week that the government has not received a detailed request from any Deripaska companies.

The people near Rusal also said that such requests were not filed, although two of them added that the company was working on such a request.

A Kremlin spokesman said Thursday that a temporary nationalization of Rusal was among the options that the Kremlin investigated to help the company deal with sanctions.

Russia's prime minister has described the sanctions as an attempt by the United States to conquer new markets for its companies, and instructed the Russian government to investigate measures to assist companies under new sanctions. (Report by Dmitry Zhdannikov, Polina Devitt, Nastya Lytchikova and Julia Payne, letter from Dmitry Zhdannikov, edited by Cassell Bryan-Low)


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