Banks Should Merge, Miners Unclear

Prime Minister Vladimir Putin said Russian metals companies should only merge with rivals to enhance competitiveness, not simply to consolidate debt, and that the state had not yet decided whether to back a proposed merger.

"It doesn't take a lot of brains simply to unify debts with debts," Putin said. "If we combine two poor people, the family will not become richer."

Billionaires Oleg Deripaska and Vladimir Potanin last week put forward a plan to merge Norilsk Nickel with five other metals producers to create the world's second-largest mining company. They proposed that the government swap debt for 25 percent of the new company. The state has not decided whether to support the plan, Putin said.

"We'll take a very balanced approach," Putin said in an interview.

The government has handed out more than $13.5 billion in bailouts to Russian companies since October after commodity and stock prices plunged. Russian companies are due to repay $110 billion of foreign obligations this year, more than double the total owed in Brazil, India and China, according to Central Bank data.

"The fact that Russia's mining industry has overextended itself in the good times has meant that it must turn to the government as a lender of last resort," UralSib analyst Michael Kavanagh wrote in a note Friday. "This has forced the government to begin to play a more active role in the management and restructuring of the balance sheets of some Russian metals companies."

Deripaska and Potanin, the two biggest Norilsk shareholders, proposed a combination with state titanium maker VSMPO-Avisma, iron ore maker Metalloinvest, potash miner Uralkali and steelmakers Evraz Group and Mechel.

The new company would have debts as much as $28 billion, sales of $60 billion and a market capitalization of as much as $100 billion, according to Potanin's Interros Holdings.

"When there's some positive synergy for the merger with mineral resources from one side and financial opportunities from the other, and a sales market on another, then of course it is needed," Putin said.

Putin also said he supported the "long overdue" consolidation of the banking sector. "If you look at the number of banks in Russia and the number of banks in a developed economy, there are just too many of them," he said.

Russia had 1,114 banks as of Dec. 1, 22 fewer than at the beginning of 2008, according to Central Bank data.

Putin said the state would support smaller regional banks because of their local experience, without giving details. "Many enterprises at the local level are used to working with regional banks, therefore we do not plan, without prior arrangement, to artificially enlarge and merge them," he said.