RusAl in board move (538 words)

Published: 7/5/2001

Following a board meeting on 2nd July at Aeroflot, reports are emerging that one of the companies holding part of a 29% stake in the airline, Carroll Trading, which is close to Roman Abramovich's Russian Aluminium, is trying to engineer an EGM, with the intention of establishing its representation on the flag carrier's board. The motion for the EGM is reported to have been tabled at the board meeting, but a date is unlikely to be decided for seven to ten days, as considerable horse-trading over board seats is likely to occur prior to a date being set. According to Aeroflot, the first meeting to discuss the EGM will take place on the 6th of July. At present, it would seem likely that the two company representatives might be reduced to one, with the government retaining its six seats on the nine-man board and the RusAl related companies, Carroll Trading SA and Nimegan Trading, having two seats. Reports have however, suggested that RusAl would like greater representation - potentially up to four seats for its 29% holding. Exactly what RusAl intends to achieve with its representation is unclear, but the suggestion that a supervisory board should be appointed immediately to oversee the company until the EGM, which has to take place within 45days, hints that it is nervous of what the current management might get up to in the interim. Its concern may well have been prompted the recent management tussles at Gazprom, which saw the company committed to a number of unfavourable deals by the outgoing management, with counter parties in some cases actually related to senior management. For the state, which is eager to sell off part of the airline, any proposed moves by the RusAl grouping will have to enhance the value of the asset for international buyers. So transparency during the next few months will be paramount in order to establish international confidence. It therefore seems likely that Valery Okulov will remain in position until the expiration of his contract next year. What happens beyond that is difficult to anticipate. Abramovich has recently been reported to have acquired a 50% stake in major carrier, Domodedovo Airlines (DA) and the immediate assumption is that the two actions are related. If so, the focus of Aeroflot's current courtship with Sibir could change to DA. This is, however, speculative, given that RusAl's investment strategy, historically, has shown little in the way of coherent shape. It may be simply driven by the possibility of a substantial turn on the investment by selling out to incoming foreign investors attracted by the state privatisation. If the plan is to take overall control of the airline by buying the state's holding it will be interesting to see the strategy evolving over the next couple of months. The perception of Aeroflot as a good investment prospect will simply boost the price and make any acquisition of the government's stake a more expensive undertaking. On fundamentals, the flow of news coming out of the carrier over the last week has been good, with the expectation that it will show a 25-30% increase in passenger revenues for 1H01, following a 20% increase in passenger volumes, despite tariff increases.

Article ID: 2625