Rusal removed from share, debt indexes; Moscow mulls response
Rusal shares to be deleted from FTSE Russell’s indexes
LONDON: International financial groups took action yesterday to distance themselves from the shares, bonds and metal of Russian aluminum giant Rusal after the United States imposed sanctions on the company. In Moscow, the government pledged to provide Rusal with short-term liquidity and offer other assistance while it also considered hitting back by looking at US goods or goods produced in Russia by US companies.
Shares of United Company Rusal, one of the world’s biggest aluminum producers, will be deleted from global equity and debt indexes while its metal will not be allowed on the London Metal Exchange (LME) and the CME Group. The US Treasury on April 6 announced sanctions against seven Russian oligarchs and 12 companies they own or control, saying they were profiting from a Russian state engaged in “malign activities” around the world.
This included Oleg Deripaska and his Hong Kong-listed company Rusal and his newly created holding company En+ Group The two companies will be deleted from FTSE Russell’s equity indexes effective from the open tomorrow, the index provider said in a statement.
Rusal’s shares in Hong Kong have slumped by half since the sanctions were imposed on Friday and gave up another 1.9 percent yesterday. The new sanctions were an attempt to capture global markets for US companies, Prime Minister Dmitry Medvedev told Russia’s lower house of parliament.
“Measures in response should be well thoughtout,” he said. “There are quite a lot of products ... in our markets that we get from the USA.” Russia imported $12.5 billion worth of US products in 2017, according to official Russian customs data. That included aircraft, machinery, pharmaceutical and chemical products.
LME, CME suspend aluminum from metal exchange
Debt, metal excluded
On the debt front, Rusal will be excluded on April 30 from JPMorgan’s CEMBI index group of emerging market corporate bonds, the US bank said. The exclusion will be done as part of the end-of-month rebalancing of the indexes, it added. As of Friday, April 6, Rusal has a weight of 0.12 percent and 0.15 percent in the CEMBI Broad Diversified and CEMBI Diversified indexes respectively, JPM said in a statement seen by Reuters that was sent to clients late on Monday.
Moody’s said it was withdrawing all ratings for Rusal due to its own business reasons.
“At the time of withdrawal the ratings were: corporate family rating of Ba3 and probability of default rating of Ba3PD. At the time of withdrawal these ratings had a positive outlook,” it said in a statement. Rusal’s aluminum brands are being excluded from the LME, the world’s biggest market for industrial metals, and the US Comex exchange owned by the CME.
The CME revoked approved status for Rusal’s metal for delivery against CME aluminum futures contracts, effective from April 10, a notice on the CME website said. The London Metal Exchange said late on Tuesday Rusal’s aluminum would be suspended from its list of approved brands from April 17 after some members raised concerns about settling contracts with sanctions-hit companies.
Aluminum prices extended their rally yesterday to a sixth straight session, hitting an 11-week peak, amid persistent worry about shortages. Analysts at CRU say Rusal accounts for 14 percent of aluminum supplies outside top producer China. Global output this year is estimated at 65 million tons.
“There’s a lot of panic and uncertainty. Buyers are scrambling to try to replace where they can, to plug the gap left by not having Russian-origin metal,” said Robin Bhar, head of metals research at Societe Generale in London. The sanctions have had knock-on impact on precious metal palladium, which has surged 6 percent this week on the back of concerns about supply from number one producer Russia. Although the supply pipeline of the metal, more than two-fifths of which is sourced in Russia, has not been directly hit by the sanctions, the market has been rattled by the inclusion of Deripaska on the blacklist. Deripaska’s Rusal owns a 28 percent stake in Norilsk Nickel, the world’s biggest palladium producer.