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US OFAC lifts sanctions against Russian aluminum producer Rusal

Tokyo — The US Office of Foreign Assets Control announced that it has lifted sanctions on Russian aluminum producer Rusal, copper and ferromolybdenum producer EN+ Group, and JSC EuroSibEnergo on Monday.

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The measure follows its notice to Congress on December 19 where OFAC expressed its intent to lift the sanctions, given that the companies have reduced direct and indirect shareholding stakes of Oleg Deripaska, who has been on OFAC list of Specially Designated Nationals and Blocked Persons.

"This action ensures that the majority of directors on the En+ and Rusal boards will be independent directors -- including U.S. and European persons -- who have no business, professional, or family ties to Deripaska or any other SDN, and that independent US persons vote a significant block of the shares of En+," OFAC said.

Oleg Deripaska's shareholding in EN+ has been cut to 44.95% from 70%, and his voting rights has been further reduced to 35% following the sanctions, according to the company. EN+ is also a Rusal shareholder.

The companies have also agreed to unprecedented transparency into their operations by undertaking extensive, ongoing auditing, certification, and reporting requirements. All sanctions on Deripaska continue in force, OFAC added.

OFAC sanctioned Deripaska and the three companies he controlled on April 6, 2018, for allegedly supporting Russia's "malign behavior in Syria and Ukraine," OFAC had said previously.

Rusal is the second largest aluminum producer in the world.

Following the April 6 sanctions, aluminum prices on the London Metal Exchange rose to a decade-high on concerns of tight supply, notably that of billet, slab and foundry alloys that accounted for nearly half of Rusal's 3.7 million mt/year production.

The London Metal Exchange removed Rusal from the list of aluminum ingot/sow/T-bar brands accepted at exchange warehouses.

On April 10, Glencore's CEO, Ivan Glasenberg, resigned from his position as a Rusal director, complying to the US sanctions.

Steve Hodgson, director of Rusal's international aluminum sales, also left the company immediately, Rusal had told S&P Global Platts.

Glencore has also suspended its previous agreement with EN+ to swap Glencore's shares in Rusal with Global Depositary Receipts in EN+.

EN+ said Saturday the company will proceed with the share transfer, which will be executed in two stages.

"The first stage will involve approximately 2% of Rusal's shares to be transferred to EN+... and the remaining 6.75% of Rusal's shares to be transferred 12 months later," according to a statement from EN+.

Glencore also has contracts with Rusal for the purchase of aluminum ingot and billet over the 2012-2019 period.

Glencore's spokesman Charles Watenphul declined to comment on the purchase contracts when contacted by Platts last week.

The US sanctions also had a ripple effect on the financial sector.

The Russian ruble, which traded at around Ruble 57-58 to one US dollar before the sanction, weakened to levels above Ruble 60 on concerns that Russian export earnings would be affected.

Rusal shares which were traded on the Hong Kong Stocks Exchange plummeted to HK$2 (25 cents) per share after the sanction, from HK$4-$6 per share.

Following the removal of the sanction on Monday, Rusal's share price rose to HK$3.13 per share as of 9:30 am local time (00:30 GMT) from last Friday's closing price of HK$2.97 per share.

-- Mayumi Watanabe, mayumi.watanabe@spglobal.com

-- Edited by Norazlina Jumaat, newsdesk@spglobal.com