Sanctions hurt Russian mine magnates

MOSCOW - Russia’s mining billionaires are starting to feel the sting of economic sanctions.

Mikhail Prokhorov, whose investment empire stretches from the world’s largest aluminium maker to the Brooklyn Nets basketball team, recently explored whether fellow oligarchs, including Vladimir Potanin, were willing to buy a portion of his $2.7 billion (R29.5bn) stake in potash miner Uralkali, two people familiar with the matter said.

The reason: the sinking value of his Russian holdings meant he would like less debt and more cash, they said.

While Prokhorov aborted the plan after failing to get the price he wanted, it’s the latest example of the pressure on Russia’s commodity magnates as sanctions hit the economy at home and a global slowdown undercuts metals demand.

Billionaires including Alexey Mordashov, who controls steelmaker Severstal, and Potanin, the biggest shareholder in Norilsk Nickel, have increased dividends from their businesses after selling assets.

“Whenever you hear billionaires say they are not affected by sanctions and the general situation in Russia, that’s not quite true,” said Yulia Bushueva of Arbat Capital in Moscow.

“It’s natural that they are looking at options to cut the debt. Others just want to get some extra cash in the current situation.”

The prospect of a slowing Chinese economy, where decades of growth have driven commodities demand, was another reason they were feeling cautious, she said.

The Russian economy is teetering on the brink of recession as sanctions over the Ukraine crisis spur capital outflows and a domestic dollar shortage.

The net worth of Russia’s seven richest mining and metals magnates has dropped to $80.8bn from $94.2bn at the start of the year, Bloomberg’s billionaires index data show.

Uralkali’s market value has declined about 56 percent since November, when Prokhorov’s companies agreed to buy about 28 percent in the potash maker, using debt.

Prokhorov’s Onexim Group and press representatives oSeverstal and Potanin’s holding company, Interros, declined to comment.

Uralkali, which produces the fertiliser potash from mines in Russia, said last week that it would pay about 8 billion roubles (R2bn) in dividends – more than in 2013 even though net income fell.

Severstal said this month it would pay $1.13bn in interim dividends after it sold US assets for $2.33bn. Mordashov planned to use the dividend from his 79 percent holding to cut debt related to other businesses, he said in July.

The rest of the proceeds from the US assets sale would be used to cut the company’s debt, which would allow Severstal to implement a new dividend policy of paying half of its profits to investors.

Norilsk’s board is scheduled to approve $2.78bn of interim dividends, almost triple the amount expected.

Potanin, the chief executive and owner of about 30 percent of Norilsk, said last week the company might distribute any cash exceeding $1bn from its balance sheet to shareholders.

Comments (1)

Russia's richest are bracing for further sanctions. This should bring comfort to investors as they're looking out for the best in their businesses.

Aleksandr Stepanov - 28 October 2014

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