Head of SUAL Oleg Fomichev on the conflict with En+

Viktor Vekselberg’s SUAL Partners, Rusal’s largest minority shareholder, is considering filing a lawsuit against the aluminum company. The minority shareholder is dissatisfied with a number of Rusal’s deals and the refusal of dividends. General Director of SUAL Oleg Fomichev told Kommersant about the company’s claims.

Rusal recommended not to pay dividends for 2022. Does the company have payment options?

Let’s look at the numbers. According to the company’s statements, it can be seen that it received $8.5 billion in EBITDA from operating activities, as well as dividends from Norilsk Nickel, for 2021–2022. The investment program for this period, according to the reporting, amounted to about $2.4 billion. In accordance with the approved dividend policy of UC Rusal, which SUAL Partners consistently advocates for, the minimum dividend amount for 2022 is $546 million, already paid interim dividends of $244 million. This is definitely not a burden for the company, which received in 2022 EBITDA from operating activities in the amount of $2 billion, dividends from Norilsk Nickel in the amount of $1.6 billion and accumulated in the accounts at the end of 2022 a record 12 years $3.2 billion

– Then why, according to SUAL, Rusal does not pay dividends?

— It is not the first year that we have been trying to get dividends with very good financial indicators of Rusal. But every time we meet with a refusal under different pretexts: super-ambitious investment plans are announced, attempts are made to buy some assets abroad or invest in non-core businesses.

We have a growing suspicion that management, with the tacit consent of the board of directors, is acting in the interests of the majority shareholder. The fact is that, due to sanctions restrictions, En + cannot distribute dividends to all of its owners and therefore is not interested in receiving funds from Rusal. But not only minority shareholders, including a large number of individuals, but also the state are interested in its dividends. VEB owns a 3.15% stake in Rusal, bought back during the IPO in 2010 and has fallen in price since then.

— How would you characterize relations with the majority shareholder of Rusal?

– Recently, your newspaper published an interview with Rusal’s representative on the board of directors of Norilsk Nickel, Elena Bezdenezhnykh. She spoke about the violation of the rights of minority shareholders by Interros. We are ready to subscribe to her every word, but only in relation to us and Rusal itself. All claims that they address to Interros can be redirected to Rusal.

I would like to remind you that there is a shareholder agreement between En+ and SUAL Partners, which continues to operate and governs the relationship between shareholders, including the implementation of the dividend policy. We, unlike partners, strictly comply with its provisions. Systematic violations of the agreement by En+ may be subject to arbitration. We are ready to take this step.

— Have your claims been discussed at the board of directors?

“Unfortunately, the conditions for our presence on the board of directors are now limited. According to the shareholder agreement, we should have two directors, but in reality there is only one director on the board. This happened due to the fact that, under an agreement with OFAC, the number of members of the board in Rusal was reduced from 18 to 14 people. We insist that our representation be expanded. One seat on the board of directors allows you to receive information, but not influence decisions.

The board of directors and its chairman condone any decision of the majority shareholder and do not treat management proposals with due diligence and the necessary critical analysis, despite the fact that the nominations of both the chairman and independent directors have been approved by OFAC, which, among other things, implies that they must be truly independent and act in the interests of all shareholders. In fact, we see the opposite picture.

In order to protect the rights of minority shareholders, SUAL Partners is preparing appeals to the court in connection with the actions or, rather, inaction of the board of directors.

— How does SUAL assess the implementation of Rusal’s investment program?

— We do not see a coherent investment program, based on which the shareholders would understand the direction of the company’s development. We see declarations and loud statements, not completed projects. As a rule, management brings a general concept and a beautiful presentation to the board of directors. We do not see any deep study or qualitative assessment of the effectiveness of the announced projects.

For example, there is a loudly announced project for the construction of an alumina refinery and a deep-water port in the Leningrad Region worth 400 billion rubles. Undoubtedly, an important and necessary project, but it is not clear what level of expertise it passed, how detailed and calculated.

The company’s investment plans must be streamlined, prioritized and directed towards the implementation of the main goal – modernization and increase in production efficiency, as well as reasonably balance them with the interests and legitimate expectations of all the company’s stakeholders, including investors and the state. We see that our fair questions irritate Rusal and give rise to a desire to discredit and distort our intentions.

– SUAL is seeking to amend the charter of Rusal. According to the current charter, the company is not subject to the provisions of the JSC Law on major transactions, interested party transactions, the acquisition of large blocks of shares, as well as the regulation of the provision of information to shareholders. If changes were made, how would SUAL take advantage of the new opportunities?

– SUAL will use it in exactly the same way as all Russian minority shareholders, in order to enforce rights equally and defend the interests of the company. Our legislation on joint-stock companies contains rules that have been gained over the years, which allow us to balance the interests of the majority shareholder and minority shareholder.

Now, all minority shareholders of Rusal, at the suggestion of the majority shareholder, are subject to an unreasonable discrimination regime and a de facto loss of rights compared to the status of shareholders in standard Russian joint-stock companies. Separate bewilderment and disappointment is caused by the fact that the board of directors of the company consistently avoids solving and even recognizing the problem, dutifully referring to some “technical difficulties”.

— You were dissatisfied with Rusal’s deal to buy 9% in RusHydro. Why?

– Let’s start with the fact that this is an absolutely non-core asset for Rusal. It does not solve the problems of the company, does not lead to increased efficiency or lower costs. This transaction diverts funds to a financial asset in the form of shares, which in the current situation have caused losses.

We do not understand why the funds were invested in the shares of a company that, although it is an energy supplier, is in no way connected with the main production of Rusal. In addition, the company, despite our repeated requests, has not provided shareholders with a coherent exit strategy from this asset. We also see a conflict of interest, as En+ is a major player in the hydropower market. It would be logical for En+ to invest in this business, but not for Rusal.

— Did the management somehow explain the purpose of the deal?

– No.

– Rusal refused to give SUAL and other minority shareholders access to major deals. Does SUAL see this as grounds for arbitration?

“We are preparing a lawsuit against members of the board of directors who did not provide control over transactions that led to multimillion-dollar losses for the company. This applies not only to investments in Braidy and RusHydro, but also to deals on hedging aluminum prices, which, judging by the reporting, also turned out to be unprofitable.

— Is SUAL considering the possibility of selling its stake in Rusal?

We are not considering such a possibility. We believe that Rusal is a very promising company due to its low cost of production and its unique hydropower-dominated cost structure. We are ready to make every effort to improve the quality of management.

— In March 2022, En+ announced the possibility of spinning off Rusal’s international business. Has the issue been discussed by the board of directors? What is the position of SUAL?

– We heard this announcement, but detailed information was not provided. We are waiting for clarification.

— Is SUAL aware of the progress of the process of dividing Rusal into so-called clean and dirty assets, which was announced in 2021?

– There was more information on the division, the press discussed the set of assets that will be included in one or another part during the division. But we were not part of these discussions. Nobody attracted us to them. How the process is now, if it exists, we do not know. We are ready to consider this option, but have not received an invitation to discuss.

Glencore will not renew Rusal’s aluminum purchase contract expiring in 2024. Do you expect the financial situation to deteriorate as a result? Was the contract profitable?

Glencore is a highly respected trader. We see the contract as beneficial for Rusal, but we also think that the company has a well-developed sales network. She is able to compensate for the lack of a contract.

– Judging by the annual reports of Rusal, under this contract, Glencore has currently bought aluminum for $ 2.8 billion, with a maximum of $ 16 billion …

– It is difficult for us to judge for what reason the contract was not fulfilled. But you are absolutely correct. Since it is not being executed for the full amount it is supposed to be, there may be some arrangements with Glencore that we are not aware of. Or “Rusal” could consider that it is more profitable for him to sell the metal to someone else, violating the terms of the agreement with Glencore. We can only guess.

– Bloomberg reported that Leonard Blavatnik sold his stake in Rusal, which he owned through SUAL. His share was acquired by Viktor Vekselberg?

— I, as CEO, cannot comment on the actions of shareholders.

Interviewed by Evgeny Zainullin