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. Last Updated: 07/27/2016

Norilsk Stock Dives, '96 Loss Downplayed

Norilsk Nickel's poor 1996 financial results have tarnished plans to issue corporate paper for trading overseas, but the key metal producer has profitable, stable output and may be crying wolf, analysts said Monday.


"We don't think the [financial] figures will affect output," said Dmitry Chernak, metals analyst at ING-Barings in Moscow.


He said Norilsk -- one of the world's top producers of nickel and platinum group metals -- might be fudging the figures to attract government attention to its crippling social costs.


A senior Norilsk official, however, said Norilsk's 1996 consolidated loss of 3.29 trillion rubles ($572 million), which RAO Norilsky Nikel reported last Friday, meant plans to issue American Depositary Receipts -- paper allowing shares in foreign companies to be traded on world exchanges and avoiding settlement hassles -- were on the back burner.


"That such a possibility [postponing the issue] is being examined is unquestionable," said Yury Kaluzhsky, Norilsk's head for projects and corporate finance, who had said last month that Norilsk planned to issue the paper by July.


His statement sent Norilsk shares crashing by more than 11 percent, and Norilsk ordinaries traded at $6.60 near the end of trading on the Russian Trading System. The stock rose 12 percent when the financially troubled company announced the issue.


Company officials and analysts said the 1996 loss did not mean the Arctic industrial behemoth had no cash to finance output.


"There is and will be absolutely no effect on production or exports," said Alexei Parshikov, director of Interrosimpex, which handles some of the Norilsk group's exports.


He said wage arrears to workers were down to less than two months and workers had no inclination to strike as they did earlier this spring before a deal with management was reached.


But Norilsk spokesman Sergei Vetchinin said the company's financial picture was nonetheless unattractive.


"It's a paradox -- the production of metals is profitable, but then the profits get spent on social costs, which in theory the state, not we, should be supporting," he said, adding that Norilsk made money on output but subsidiary costs sucked up more than 40 percent of revenues.


The London Metal Exchange was closed Monday for a bank holiday and traders were not available for comment.


Norilsk is the world's second largest producer of nickel, a key component of stainless steel. It is the largest producer of palladium and one of the world's top three producers of platinum -- used in catalytic converters and jewelry.


Chernak said Norilsk had better operating margins than its Western competitors but that rising output costs at the company would take their toll on 1996 margins.


He said Norilsk's 1995 gross operating margin for nickel output was a robust 36 percent, and 34.8 percent for copper, compared with a Western metals industry average of 31.7 percent.


Chernak said higher input costs would reduce Norilsk's margin to 23 percent for 1996, but he expected its 1996 net loss to ring in at $120 million -- far below the figures Norilsk announced.


Norilsk's Vetchinin said the reported 1996 loss figure was calculated on an accruals basis, which meant it was not distorted by figures reflecting nonpayment for goods or services, a problem plaguing Russian industrial companies and distorting balance sheets.


But Chernak said Norilsk's loss was misleadingly bloated because it included, among other things, allocations to capital expenditure funds.


Norilsk is struggling to enact a restructuring plan in which it hopes the state will assume responsibility for financing its vast social infrastructure, including resettling tens of thousands of pensioners.


Parshikov said efforts to push through restructuring would intensify. But Norilsk officials have been unable to say whether a recent board meeting had approved the plan.