Rusal’s IFSC vehicle caught up in US sanctions move

Debt issued by the Dublin-based vehicle used by Russian aluminium giant Rusal to raise finance in international markets has been impacted by sanctions imposed by the United States on the group last week.

Rusal is among a wave of Russian companies to have set up Irish special purpose vehicles in recent years to issue dollar-denominated bonds to fund their operations, using 1997 tax laws designed to make the International Financial Services Centre (IFSC) an attractive place for "tax neutral" international debt securitisation.

Dublin-registered Rusal Capital, set up in October 2016, has three bonds in issue, amounting to $1.6 billion (€1.3 billion). The market interest rate, or yield, on bonds due in 2020 with a par value of $600 million spiked at almost 29 per cent earlier this week as their value slumped, compared to their original rate of below 6 per cent when they were sold 14 months ago.

A spokeswoman for Tradeweb, which operates an electronic securities market, told The Irish Times on Wednesday the bonds have been taken down from its systems as a raft of international financial firms sought to distance themselves from the Russian company.

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Two of the world's main credit ratings firms, Moody's and Fitch, moved on Wednesday to pull their ratings on Rusal and its Irish funding vehicle, whose bonds are also listed on the Irish Stock Exchange.

‘Malign activity’

Rusal and its owner Oleg Deripaska were both hit by US sanctions announced last Friday against a number of Russian officials, politician, tycoons and companies alleged to have close ties with president Vladimar Putin. The move was designed to punish Moscow for what the US Treasury Department called "malign activity around the globe".

The US cited Russia's activities in Crimea, support for Syrian president Bashir Assad and alleged attempts to subvert Western democracies and "malicious cyber activities" as it made the move.

In withdrawing its ratings for Rusal and the group’s Irish funding vehicle, Fitch said: “Rusal will be impacted by the sanctions as the number of counterparties that will be able and willing to provide procurement, marketing, funding, or treasury services to the group is likely to be significantly reduced.”

Technical defaults

Rusal said on Monday that it was assessing whether the sanctions will result in technical defaults on some of its obligations and that its initial view is that the US move will have a materially adverse impact on the business and prospects.

However, the Russian government has pledged to provide Rusal with short-term liquidation and offer other assistance while also weighing hitting back by looking at US goods or goods produced in Russia by US companies.

Rusal took over Shannon estuary-based Aughinish Alumina, which employs about 450 people, in 2007 and the Department of Business, Enterprise and Innovation has said that it was assessing the potential implications of the US sanctions for Irish and overseas companies operating in the country.