By Bloomberg News
Jan. 27 (Bloomberg) -- United Co. Rusal Ltd., the world’s largest aluminum producer, tumbled 11 percent in its Hong Kong trading debut as demand for new equity waned after the city’s benchmark index dropped from a November high.
The Moscow-based company fell to HK$9.66, the worst Hong Kong debut since Dec. 18, from its listing price of HK$10.80. Rusal, the first 2010 IPO in the city, will use net proceeds of HK$16.7 billion ($2.1 billion) to pay down $14.9 billion of debt.
Rusal, barred from marketing to retail investors, found buyers for all the stock on offer after winning investments from Asian billionaire Li Ka-shing and New York hedge-fund manager Paulson & Co. Hong Kong’s Hang Seng Index and aluminum prices have dropped this week as investors globally retreat from risk on concern lending curbs in China, and U.S. plans to rein in banks will stifle the global economic recovery.
“The market sentiment right now isn’t very good,” said Helen Lau, an analyst at OSK Asia Holdings. “Investors are concerned about its debt risks. If the market outlook for aluminum improves and the potential risks diminish, people would be interested.”
Aluminum prices in Shanghai have dropped 8 percent from this year’s high on Jan. 7. The Hang Seng Index fell for a sixth day, extending a decline from its Nov. 16 high to 13 percent. Investors are concerned the Chinese government will rein in liquidity to contain asset bubbles after the country posted the fastest economic growth since 2007 in the fourth quarter.
“You’ve seen what’s happened with the financial situation in recent days,” Rusal Chief Executive Officer Oleg Deripaska said today in the city. Today’s “price is reasonable,” he said.
Rich Friends
Rusal’s global depositary shares fell 11.6 percent to 17.60 euros on their first day of trading in Paris as of 10:39 a.m. local time.
The first Russian company to IPO in Hong Kong had its offering delayed at least twice by regulators and restricted to wealthy and corporate investors on concern about its debt. The stock trades in blocks of 24,000 shares.
“The minimum trading board lot plus the weak market atmosphere will be obstacles for retail investors,” Allen Wong, senior research analyst at Quam Ltd., said in Hong Kong.
Rusal reserved about 39.4 percent of the IPO shares for Malaysian billionaire Robert Kuok, hedge fund Paulson, NR Investments Ltd., the principal investment company of Nathaniel Rothschild of the banking family, and Russian state development bank Vnesheconombank, or VEB.
Today’s decline means shares owned by Paulson, NR Investments and Kuok would have a combined paper loss of about HK$180 million.
Buy Chalco
The IPO price gives Rusal an enterprise value that is 11.7 times the 2010 earnings before interest, tax, depreciation and amortization, or Ebitda, people familiar with the sale said last week. The enterprise value is a sum of a company’s market value, equity and debt minus cash.
Aluminum Corp. of China Ltd., the nation’s largest producer of the metal known as Chalco, trades at an enterprise value 13.6 times its 2010 Ebitda, according to data compiled by Bloomberg.
“Some analysts say that Rusal is most sensitive to aluminum price changes, which might be true,” Quam’s Wong said. “But it seems prudent to buy Chalco,” which will also benefit from higher prices without Rusal’s debt, Wong said.
Beijing-based Chalco fell 3.4 percent to close at HK$7.90 in Hong Kong. Rusal’s IPO comes less than two months after it completed Russia’s biggest corporate debt restructuring.
Rusal posted a loss of $868 million in the first half of 2009, compared with net income of $1.4 billion a year earlier. Full-year profit won’t be less than $434 million for 2009, it said in the prospectus.
Other Russians
Rusal’s IPO will lure other companies in Russia, Ukraine and Kazakhstan to list in the city, Deputy Chief Executive Officer Artem Volynets said today in a Bloomberg Television interview.
“We do believe that Rusal listing here opens up an alternative market for our region,” Volynets said. “There’s a very high level of interest.”
OAO Russian Railways, operator of the world’s longest rail network, said Jan. 21 it may consider the city for the proposed dual listings of two units.
“Russian companies have looked to London for finance,” said Eric Kraus, a strategist at Otkritie Financial Co. in Moscow. “But with large pools of capital in Greater China, particularly interested in resources companies, then the trend will move towards the East.”
China’s Demand
China, the world’s largest metal consumer, spurred price increases in raw materials last year as its $586 billion stimulus spending raised demand from builders and automakers.
Aluminum futures gained 45 percent in London last year, and Alcoa Inc. said on Jan. 11 that global demand will increase 10 percent this year, led by China.
“Last year, China’s growth supported the demand,” Rusal Deputy CEO Volynets said in the interview. “We see strong end- user demand. We see restocking in the global supply chain.”
BNP Paribas SA and Credit Suisse Group AG led banks including Bank of America Merrill Lynch, BOC International Holdings Ltd., Nomura Holdings Inc., Renaissance Capital Ltd., OAO Sberbank and VTB Capital SA in arranging the sale.
--John Duce and Paul Gordon in Hong Kong, Xiao Yu in Beijing, and Maria Kolesnikova in Moscow. Editors: Tan Hwee Ann, Jacob Lloyd-Smith.
To contact the Bloomberg News Staff of this story: Xiao Yu in Beijing at yxiao@bloomberg.net. John Duce in Hong Kong at Jduce1@bloomberg.net.
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