Planned 8.75% stake swap with aluminium tycoons firm cancelled after new US sanctions

Glencore, the world's largest commodities trader, has begun cutting its ties with the Russian aluminium tycoon Oleg Deripaska after new US sanctionsagainst his business empire.

Glencore said it had cancelled the schemed swap of its 8.75% stake in the Russian aluminium maker Rusal, which is controlled by Deripaska, for shares in the London-listed En+ Group, another of the oligarch's companies.

Glencore's chief executive, Ivan Glasenberg, has also resigned from the Rusal board. The Swiss-based commodities trader said it was evaluating other contracts with Rusal. It bought $2.4 bn( PS1. 7bn) of aluminium from Rusal in 2017 under a multi-year deal that is due to be renegotiated this year.

” 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 ,” it said.

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” Glencore is still evaluating the position under its contracts with Rusal, but notes that these contracts are not financially material to Glencore .”

The rouble has lost about 4 % against the dollar, its second day of heavy loss, falling to its lowest level since December 2016.

The plunge came even though the Russian central bank chief, Elvira Nabiullina, said the country's economy could withstand the latest US sanctions.

” The central bank has a broad spectrum of instruments in order to act in such situations, if dangers arise to financial stability. In our view, there are not such risks now ,” Nabiullina told a conference in Moscow.

” There is no required to take some kind of systemic measures. Of course we will follow the situation and perhaps introduce some revisions if there is reason .”

Shares in Glencore fell 2% on Friday when US sanctions on seven Russian oligarchs and 17 top government officials were announced, and a further 3.4% on Monday, with investors fretting over the impact on the company's aluminium business. On Tuesday, the shares rallied as much as 4.6% after some analysts said there would be little impact.

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#BREAKING Russian central bank chief: no danger to ‘financial stability' from sanctions

April 10, 2018

Paul Gait, a mining analyst at Bernstein in London, said the market overreacted on Monday. In a worst-case scenario, trenching the aluminium deal with Rusal would lead to Glencore losing less than 1% of its 2018 earnings, he calculated. Even if Glencore is forced to write down the value of the Rusal stake to zero, it merely accounts for 1.3% of the company's marketplace capitalisation.

Glencore's involvement in Rusal dates back to 2007, when Deripaska and fellow Russian billionaire Viktor Vekselberg, who has also been sanctioned, merged their companies with Glencore's aluminium plants.

Last October, when Deripaska wanted to float his holding company En+ Group in London, Glencore stepped in as a cornerstone investor, pledging to swap its 8.75% stake in Rusal for En+ shares.

The sanctions announced last Friday ban US individuals and companies from doing business with Deripaska and his firms. While Glencore is not a US company, the penalties make it harder for anyone to work with the oligarch.

Deripaska has called the sanctions” groundless, ridiculous and absurd “.

Andreas Johnson, an economist at the Swedish bank SEB, said:” We believe that additional sanctions over the next 12 months are highly likely, especially if president Trump expects these to improve his approval rating ahead of the midterm elections in November .”

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