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Russia calls Rusal resignations 'positive signal' toward lifting US sanctions

Shares in Russia's largest aluminum company, United Co. Rusal PLC, rallied on the Moscow and Hong Kong stock exchanges May 24 on the back of the resignation of the CEO and half of the board.

In Hong Kong, Rusal closed at HK$2.02 per share, up from HK$1.89 the previous day, while in Moscow, the company traded at 27.22 Russian rubles per share in the late afternoon after closing at 26.65 rubles per share May 23.

The Russian aluminum giant's shares have taken a beating since the U.S. imposed sanctions April 6 for allegedly profiting from the "malign activity" of the Russian government around the globe. The U.S. Treasury Department has said that to lift the sanctions, billionaire tycoon Oleg Deripaska must relinquish his control of the company. Deripaska holds a 48.13% stake in Rusal through power company En+ Group PLC, where he is a majority shareholder with a 53.86% stake.

Since the onset of the sanctions, Deripaska has stepped down as director of EN+, although he remains on the board of Rusal. The Treasury Department previously said Deripaska has been investigated for allegations such as money laundering and threatening business rivals.

The board members that resigned from Rusal were all representatives from EN+, and the Russian government believes that the move will send a positive signal to the U.S. and contribute to a possible loosening of sanctions on Rusal.

"This is good. It means they will soon lift sanctions," Russian Finance Minister Anton Siluanov told journalists at the St. Petersburg International Economic Forum on May 24. He went on to add that the U.S. will most likely approach this new development "soberly."

Kirill Chuyko, head of equity research and senior metals and mining analyst at BCS Financial Group, said this latest move "is an attempt by Rusal and its shareholders to give as many excuses to the U.S. government to grant some relief for the aluminium producer and lift obstacles for aluminium trading and ultimately for trading in shares and bonds."

Director of ACRA's corporate ratings group, Maxim Khudalov, told S&P Global Market Intelligence that the withdrawal of EN+ representatives from Rusal's board could be a sign that EN+ intends to reduce its stake in the company.

"Though we cannot predict the actions of U.S. regulators who are aggressively acting to protect domestic aluminum production without taking into consideration consequences for domestic construction, packaging and auto production and global aluminum prices," he said.

The sanctions on Rusal initially prompted a surge in the aluminum price, which reached highs of almost US$2,600/tonne on the London Metal Exchange. The price has since leveled out, and aluminum was trading at US$2,226/t on May 24.

Rusal has also voiced fears of a technical default and on May 24 warned that it may not be able to maintain operating performance, and as a result, current creditors may step up calls for repayment.

Head of Russian state bank VTB told journalists that while the bank will not grant any new loans to Deripaska companies, it is prepared to defer payments owed by Rusal, if necessary.

"We are not insisting on payment, we are prepared to wait if possible. We are not putting any pressure on anyone because we understand it could escalate into a very serious situation," he told press at the St. Petersburg International Economic Forum.

According to its 2017 annual report, Rusal has a US$95 million credit line with VTB bank. The aluminum producer's largest creditor is Sberbank, with which it holds a US$4.2 billion credit line. Sberbank CEO Herman Gref told Russia 24 that the bank does not see any risk to its loans at present.

"We are, of course, holding regular negotiations with company management and the government. However, we are not seeing any risk to our credit lines. I think a constructive solution will be found," he said.

As of May 23, US$1 was equivalent to 61.61 Russian rubles.