Deripaska cutting stake is best for everyone
News last Friday from the London Stock Exchange (LSE) that Oleg Deripaska is set to give up his control of Rusal by removing his majority stake in EN+ (Rusal’s parent) is the best possible outcome at this point for the US, for Russia, and for investors.
By using sanctions, the US has successfully flexed its muscle and shown its strength and control over the international financial system. No sensible EM investor, from this point forward, will be buying Russian bonds or shares of companies that the US Treasury might target next.
This has fixed the problem of the rather embarrassing previous rush to buy any paper likely to be sanctioned for fear of future lack of supply.
The US Treasury has, of course, also made its point to Russia. It has the power to cut off, with almost immediate effect, any company from the machine of Western financing. It is not to be dallied with.
But it is a savvy move for Russia too. With Deripaska dumping his shares, a move that must have surely already been discussed with the Kremlin, it is indicating to investors that Russian companies are willing to pay their debts, pay dividends, and will manoeuvre within their powers to make that possible.
It is buoying goodwill with EM investors — after the last week, most of its investors see the US Treasury as the erratic authority influencing their portfolio, not Russia. That gives some solace to investors less under the influence of the US Treasury and keeps other avenues of funding open.
The reputation Russia has built in the last two decades, of a solvent country that treats international investors well, has been hard and deliberately won after the Yukos situation in the mid-1990s.
Deripaska’s attempt to keep Rusal solvent adds to investors’ feelings that Russia is a friend, not an enemy. If and when investors can invest in Russia, this will weigh on their minds, as will Russia’s disclosed $458bn in international reserves at the end of March.
Responses to previous crises and this one show that the willingness and ability of the Russian state to provide support should not be underestimated.
There is no guarantee that if Deripaska’s stake in Russian aluminium producer Rusal drops below 50%, the sanctions will be removed from the company.
In sanctioning the company rather than just the oligarch, the US initially seemed to want to make it clear to the market that it was targeting the Russian economy broadly rather than punishing individuals.
However, talk from US Treasury secretary Steven Mnuchin has more recently rowed back that stance, indicating that there is a good chance that the US sanctions will be lifted. If so, aluminium prices will stabilise and US investors will be appeased — it is tough to see what the US Treasury has to gain by keeping the company sanctions in place.
Russians are thought to have a belief that there is no such thing as win-win situation. For one party to win in a negotiation, the other must lose.
But this is the closest to it that anyone could hope for. Apart from, maybe, Deripaska.