Oleg Deripaska, majority shareholder in UC Rusal. - File

UC Rusal, the world's largest aluminium and alumina producer, has reached an agreement with the Coordinating Committee representing over 70 international banks on a long-term debt restructuring deal.

The Oleg Deripaska-led company which had amassed approximately US$16.8 billion in debt, spent most of 2009 to date trying to restructure its local and international obligations, and to aggressively manage its existing operations.

Earlier this year it obtained a standstill agreement which allowed it time to work with its foreign creditors in restricting the international portion of its debt. In a press release, UC Rusal indicated that the agreement that it has now reached with its foreign lenders will allow the company to settle its foreign debt within seven years.

The restructuring will be split into two phases.

In the first phase, covering the first four years, RUSAL will focus on maximising efficiencies across the business and taking full advantage of the recovery in demand, the company said in a press release issued July 30.

RUSAL will seek to repay a total of US$5 billion of debt owed to all lenders by the fourth quarter of 2013. "During this period principal repayments will be made on a 'pay-if-you-can' basis, based on the performance of the business, thereby ensuring the full sustainability and integrity of its operations," said the release.

Part payment

Interest will be paid partly in cash, at a rate ranging from LIBOR plus 1.75 per cent to 3.5 per cent, with the remaining portion to be capitalised.

"Furthermore, in order to preserve cash for lenders and the business, no dividends will be paid until such a time that Net Debt/EBITDA reaches 3x," Rusal said.

The second phase of the restructuring agreement covers an additional three years, and during this period Rusal will have the option of refinancing the remaining debt with its existing lenders.

But it also has the option of seeking an alternative refinancing arrangement if market conditions should prove more favourable for the company.

The foreign creditors club's Coordinating Committee has also approved, Rusal said, the use of the company's cash flows to finance the completion of the construction of the Boguchanskaya Hydro Power Plant, a priority project of strategic importance for the company.

The deal still has to be approved by the credit committee, and is also pending finalisation of relevant legal documentation.

Quoting sources

On July 31, the Wall Street Journal, quoting sources familiar with the situation, "Rusal has pledged stakes in its assets as collateral, including 25 per cent stakes in its flagship Siberian aluminium smelters, Bratsk and Krasnoyarsk", and that the deal included "an option, but not an obligation or agreement condition, for Rusal to sell its 25 per cent stake in miner OAO Norilsk Nickel."

In a separate announcement July 29, the En+ Group, the vehicle which holds Deripaska's shares in UC Rusal and manages the aluminium giant, as well as assets in the oil sector, indicated that it had secured a separate extension on repayment of US$1 billion in debts until the end of 2013.

En+ controls over 60 per cent of Deripaska's business interests and its debt restructuring agreement will involve around 40 banks.

According to a statement by Vladislav Solovyov, the group's general director, En+ expects to sign the debt restructuring agreement within two months.

renee.shirley@yahoo.com