Gov’t concerned at impact of US sanctions on Rusal

-loading of barges at Aroaima put on hold, sources say

Oleg Deripaska

With aluminum giant, Rusal’s stocks tumbling and dollar bonds slumping to record lows following United States sanctions against its Russian owner, Oleg Deripaska, the Guyana Government has expressed concern that it might have implications for the company’s operations here.

Rusal  owns 90% of the Aroaima, Berbice-based Bauxite Company Guyana Inc. The company’s operations is located on the Berbice River between Kwakwani and Linden with employees from those areas making up the majority of its labour workforce.

“I hope it is not going to have any long-term implications for the social well-being of our people, employment levels and export earnings. But more importantly, in the  immediate future, that it has no challenges  as regards employment and  social welfare,” Minister of Foreign Affairs Carl Greenidge said yesterday when asked about the issue by Stabroek News .

Efforts to contact representatives of the company here proved futile.

However, employees here told this newspaper that while operations continued up to yesterday they have been told by company executives to hold all loading of barges and that the company will make an announcement on the 15th of this month.  The halt of the loading would be as a result of  the Rusal bauxite being blacklisted on major exchanges such as the London Metal Exchange.

“What we understand is that they have a problem in Moscow. The superintendent say by the 15th they will come up with a decision what they want to do. Work going on as normal but we are not really loading we are stripping and stockpiling bauxite but we are not loading any barge,” one worker said even as he explained that a ship for transporting the bauxite was due in the country tomorrow.

“These people very disrespectful. They didn’t tell us anything really but go ahead and do the maintenance work. I don’t know is who bring them here because all they concern is to load up the bauxite and ship it out. They can’t ship out it now it seem but they aint say anything they just say tie up the barge them and leave them,” another added.

Greenidge said that government was aware of the problem but as of yesterday morning when he spoke he did not have any definitive information but would be working assiduously to get feedback as it is concerned about operations here. “We are still trying to pluck out of the air the essentials and then to get an informed analysis of what implications this has,” he said.

Last week, the U.S. government added Russian magnate and owner of Rusal, Deripaska, to its sanctions blacklist in retaliation for Russian interference in the US general elections of 2016.

He was added to the list of  seven Russian oligarchs, 12 companies they own or control, as well as 17 senior Russian government officials because, the US said they were profiting from a Russian state engaged in “malign activities” around the world.

Reuters reported that that Deripaska said that the U.S. decision to impose sanctions on him was “groundless, ridiculous and absurd.”

But the move triggered the worst financial crisis the company has faced since its operations with its stocks and bonds tumbling on Monday and yesterday.

Reuters posits that while Russian markets, including the rouble, fell across the board on Monday, Rusal assets were hardest hit, with its Hong Kong listed shares halving in value and the company warning it risked tipping into technical default.

And while aluminum prices continue to surge on global stock markets, the fate of local workers, most of whom are from Linden, remains unsure.

Glencore

According to Reuters, Swiss-based commodities trader Glencore, a Rusal shareholder and one of its biggest customers, said it was evaluating the position under its contracts with Rusal in the light of the sanctions.

Glencore chief executive Ivan Glasenberg also resigned from his role as a Rusal director.

Deripaska’s companies have seen other resignations by non-Russian board members since the sanctions, with his newly created holding company En+ Group saying board directors Dominique Fraisse and Zhao Guangming had quit on April 6 and 9 respectively.

To offset the impact of the punitive measures, Rusal has triggered a contingency plan asking customers to pay in euros instead of U.S. dollars in a bid to skirt the sanctions, a source close to the matter said.

This follows the example of Iran, which a few years ago opted to use gold, oil and the Japanese yen to pay for goods that would typically be priced in dollars, Reuters said.

Glencore also said it was pulling back from earlier plans to swap its 8.75 percent stake in Rusal for global depository receipts in En+.

“Glencore is committed to complying with all applicable sanctions in its business and is taking all necessary measures in order to mitigate any risks to Glencore’s business as a result of the designation of Rusal and En+ as SDNs (specially designated nationals), including in respect of secondary sanctions,” Glencore said in a statement.

“Glencore will not proceed with the transaction at this time in light of the designation of Rusal and En+ as SDNs,” it said.

Matt Chamberlain, the chief executive of the London Metal Exchange (LME), said the LME would take steps to keep aluminium produced by Rusal and sold after the sanctions were imposed out of its warehouses.

Speaking in the Chilean capital, Chamberlain said aluminium that entered LME warehouses before the sanctions were imposed would not be affected, Reuters reported.

CUSTOMERS WARY

The websites of Rusal and En+ were down last evening for unknown reasons.

The U.S. sanctions explicitly bar U.S. entities from doing business with Rusal, but the impact extended to companies outside the United States too.

They are wary that Washington could slap so-called “secondary sanctions” on them if they are deemed to be facilitating Rusal’s business, Reuters added.

Rio Tinto, a Rusal customer, said it was reviewing its trading relationship with the Russian firm.

RUSAL DEBT

The sanctions are likely to mean Rusal is unable to pay the coupon, due on May 3, on one of its Eurobonds, putting the company in technical default on the paper, investors and analysts said.

Rusal has the money to pay the coupon, which is the interest payment on the bond, but will be unable to make the payment because it will be blocked off from essential bond market infrastructure such as clearing services, trading platforms and correspondent banks, market participants said.

The companies that provide those services are wary that, if they have to handle transactions relating to the Rusal bond, they too could come under sanctions risk, the Reuters report said.

Almost all of Rusal’s $7.6 billion debt is dollar-denominated, making it difficult for the company to make repayments since the sanctions effectively cut off its access to the U.S. banking system and correspondent banks and creditors.

Rusal declined to comment yesterday. On Monday, it said: “The company intends to continue to fulfil its existing commitments in accordance with applicable legal and regulatory requirements.”

Around the Web

Comments