RusAl Secures $4.5Bln Bailout

In the biggest state bailout yet, United Company RusAl will receive $4.5 billion to refinance a Western loan coming due this week, news reports said late Wednesday.

Vneshekonombank announced earlier in the day that it had approved nearly $10 billion in loans to help companies refinance their foreign debts, meaning that the funds for RusAl would represent almost half of that amount.

The news came as the realities of the global financial crisis seemed to sink in with the government, as the Economic Development Ministry trimmed its forecast for 2008 economic growth and a senior finance official cautioned that federal spending for 2010 might need to be revised because of low oil prices.

Still, the stock market surged by 12 percent.

RusAl notified the Western banks that lent it the $4.5 billion last spring that it had secured a similar amount from VEB on Wednesday to refinance the debt, Interfax reported, citing a banking source.

"The company sent notification to the banks in the syndicate six hours ago that it has reached an agreement with VEB on a loan of $4.5 billion," the source said.

Bloomberg carried a similar report, citing two unidentified bankers.

RusAl declined to comment on the reports.

A bailout for RusAl had been widely anticipated. RusAl took out a two-year loan in April to acquire a 25 percent stake in Norilsk Nickel. If it had defaulted, it would have had to hand over to Western creditors the stake in Norilsk, which the state considers a strategic asset.

VEB did not specify which companies had qualified for funds in the $10 billion bailout, saying only that they needed to repay loans soon.

"Our supervisory board approved a decision on a range of borrowers whose debts must be refinanced," VEB chief Vladimir Dmitriyev said on Vesti-24 television. "The amount is a little less than $10 billion. These are first-class borrowers that, because of the unfavorable situation on world markets, face the threat of losing their assets."

Meanwhile, the Economic Development Ministry lowered its 2008 GDP forecast by half a percentage point on expectations that the financial crisis would cause a slowdown in the fourth quarter, but it emphasized that economic growth would still be 7.3 percent.

In an indication that the prospect of falling oil prices is a major concern for the government, Deputy Finance Minister Dmitry Pankin warned that the 2010 budget would fall into deficit with oil at $60 per barrel, and he mentioned several measures that the government could take to address this.

"At $60 a barrel, the 2009 budget will be balanced, but probably not in 2010," he said at a UBS investment conference. "One option the government has is to use the Reserve Fund, while another one is to reconsider the budget."

The 2009 budget originally assumed an oil price of $95 per barrel, which currently seems optimistic given that oil prices have fallen more than 50 percent since July.

In the interim, the government is continuing to look for options to ease the blow on real sectors of the economy. Kremlin economic adviser Arkady Dvorkovich told the same investment conference that the government was evaluating a proposal to introduce longer installments on value-added tax payments. Earlier this month, the government passed a law allowing companies to break quarterly VAT payments into three-month installments.

Dvorkovich said the government might now introduce VAT deductions on advances paid by companies for goods and services.

"I think the decision could be made in two or three weeks, and then the appropriate law would be passed," he said. "It could have an immediate effect on companies' working capital."

Amid concerns of the falling ruble and the government's promises of no major ruble devaluation, Gazprom chief financial officer Andrei Kruglov told the conference that the company would actually benefit from a weaker ruble since most of its revenues come from dollar exports and its expenses are ruble-based.

MDM Bank chairman Oleg Vyugin said that continuing to use the system where the ruble is pegged to a basket of dollar-based products might not be the most effective mechanism given Russia's current financial standing and that it necessitates extra spending of government reserves to defend the ruble. He said releasing the ruble might actually show that it is a stronger currency.

Steven Meehan, CEO for UBS in Russia and the CIS, said in an interview that the bank was continuing to expand its staff in Russia — a strong indication that it believes the country is set for a rebound.

Stock market players seemed to agree with that sentiment, with the MICEX Index leaping 13.8 percent and the RTS Index rising 11.9 percent. State-owned blue chips led the way, with Sberbank shares posting a 27.1 percent gain on the RTS and Rosneft and Gazprom rising 22.1 percent and 15.7 percent, respectively.

VEB has invested 20 billion rubles ($740 million) in shares and 5 billion rubles in bonds of Russian companies since last week, Dmitriyev said Tuesday.