The Windalco Kirkvine bauxite plant in Manchester is seen in this September 15, 2004 aerial photograph. - File

Further uncertainty surrounds the future of the local bauxite-mining firms, West Indies Alumina Company (Windalco) and Alumina Partners (Alpart), as their parent company, the Russian United Company (UC) RUSAL, scrambles to restructure portions of its US$14 billion debt. Earlier this month, the company announced that it had signed a standstill agreement, applied to principal payments in relation to US$7.4 billion in debt it currently owes to a group of international banks, led by eight lenders, including BNP Paribas, Natixis and Société Générale.

According to a UC RUSAL statement, "the standstill agreement will be effective for a period of two months with the possibility of extension for a further month and will provide RUSAL with additional liquidity. The agreement covers more than 30 transactions, including syndicated and bilateral loan agreements, bank guarantees and letters of credit, which involve more than 70 banks."

Complex negotiations

The agreement is only part of complex negotiations between RUSAL and its lenders as it hunts cash and restructures its debt payments over several years in the face of collapsed alumina prices and a glut of the commodity on the world metals market.

The company has reported a debt stock of US$14 billion, including the US$7.4 billion owed to its international banks. It noted in its statement that "the signing of the agreement has also been supported by RUSAL's Russian lenders".

The Financial Times reported earlier this month that RUSAL owes approximately US$7 billion to state-controlled banks in Russia, with at least $4.5 billion falling due this year. It owes another US$2.8 billion to Russian metals tycoon Mikhail Prokhorov.

UC RUSAL's majority shareholder is its current CEO, the Russian billionaire Oleg Deripaska, who purchased 57 per cent of the company through his investment vehicle Basic Element (BasEl) - a key part of his En+ group. Reuters news agency reported last week that the Russian bank Alfa, which is owned by Russian billionaire Mikhail Fridman, is pursuing repayment of around US$1 billion owed to Alfa by BasEl.

Billion dollar loan

Last year, RUSAL was the recipient of a US$4.5 billion loan from the state-owned bank, VEB, to prevent the alumina company's 25 percent stake in Norilsk Nickel being taken over by its foreign creditors. The loan was part of a $50 billion facility provided by the Russian government to help major Russian firms suffering from falling commodities and stock prices. Fridman's Alfa Group also got help from VEB to repay a US$2 billion loan to its foreign lenders in relation to its stake in the mobile phone company Vimpelcom.

Bailout programme

However, the bailout programme has been halted by the Russian government, as state officials have become increasingly concerned about Russia's dwindling reserves, the need to plug holes in the national budget and preservation of social spending. There are indications too, that the state wants to see big business take greater responsibility for their finances.

As UC RUSAL buys itself some time, the company's financial picture might not improve over the next three months. Analysts agree that while RUSAL's lenders will restructure its loans, albeit at higher interest margins, and thereby help the company's liquidity position, it will, for the rest of the current financial year, continue to face slumping sales, large stockpiles of its primary commodity, aluminium, and decreasing revenues.

RUSAL, the world's largest producer of aluminum, has been hit by a 60 per cent decline in aluminium prices since last July's record $3,380 per ton.

Higher Global stocks

Global stocks of the commodity are higher than they have ever been, so the company has had to reduce its output of bauxite and alumina this year in a number of its plants, including Windalco and Alpart here in Jamaica.

The parent company has also been hit by a 35 per cent devaluation of the Russian currency, the rouble, which has hobbled the firm's ability to service its debt.

Unless this situation turns around dramatically in the near future, UC RUSAL looks set to resort to further drastic cost cuts.

Late last year Alpart and Windalco announced some 300 job cuts between them with Windalco following up with the temporary closure of its Kirkvine plant in Manchester and Ewarton facility in St Catherine, planned for this month end, sending home another 250 temporary staff.

renee.shirley@yahoo.com