U.S. Sanctions Take a Toll on Rusal Shares -- 2nd Update

By James Marson and Scott Patterson

MOSCOW -- Shares in United Co. Rusal, one of the world's largest aluminum producers, lost half their value Monday, as the effect of U.S. sanctions on Russian companies and the tycoons that own them rippled across markets around the world.

Investors sold off Rusal shares in Hong Kong amid uncertainty over how the sanctions may affect the company's ability to trade with counterparties. The stock finished down 50.4%.

The specter of disruptions hit global aluminum markets, which soared as much as 4% in London. London commodities broker SP Angel estimates Rusal's primary aluminum output last year accounted for about 6% of global production and 14% of production excluding China.

More broadly, investors dumped Russian assets. The ruble fell more than 3.5% against the dollar, while Russia's MICEX index fell more than 8% by late afternoon trading.

The company said in a filing that U.S. sanctions "may result in technical defaults in relation to certain credit obligations" and that it was evaluating the impact of any such defaults on the company's financial position.

Rusal was one of 12 companies, owned by seven Russian tycoons, that the U.S. government sanctioned Friday over what Treasury Secretary Steven Mnuchin called Russia's "malign activity" around the world, including military interventions in Ukraine and Syria and cyberattacks.A Kremlin spokesman on Monday called the measures unlawful and said that the government was analyzing them and preparing a response.

Rusal's main owner, Oleg Deripaska, was also specifically named in U.S. sanction Friday. Mr. Deripaska on Friday called the measures against him "baseless, ridiculous and absurd," a representative told Russian news agencies.

En+ Group, a London-listed company that is majority owned by Mr. Derispaska and holds a 48% stake in Rusal, as well as power companies in Russia, said it was "highly likely" that the sanctions would be would hurt its business. En+ shares fell more than 34% on Monday after a brief trading suspension.

Western firms that have joined up with Russian firms now on the sanctions list also were assessing new risks. Swiss engineer Sulzer AG said it had agreed to buy shares from its main owner, Renova Holdings, which appeared on the sanctions list along with its chairman Viktor Vekselberg, to comply with the sanctions.

Swiss based mining and trading giant Glencore PLC holds a nearly 9% stake in Rusal. Glencore Chief Executive Ivan Glasenberg has been a Rusal board member since 2007. It is unclear if the sanctions directly affect that shareholding. Glencore declined to comment. Shares in the firm were down 3% in London trading.

The new U.S. restrictions make it all but impossible for Rusal and other sanctioned firms to do business in dollars, analysts said, raising questions about their banking and trading relations.

The U.S. government said that non-U.S. citizens may face sanctions for "facilitating significant transactions" for sanctioned individuals or entities. That could make activities as simple as exchanging currencies more expensive for Rusal, given the international scope of its operations and the fact that sales are priced in U.S. dollars, said Edward Sterck, an analyst at BMO Capital Markets.

Timothy Ash, an analyst at BlueBay Asset Management in London, said the sanctions list would hurt the Russian economy, and that its unpredictability was its strength. "Now, no one in the top 100 list (of wealthiest Russians) can be sure they won't be subject to sanctions," he said.

Mr. Ash said that banks will be even more cautious about lending to Russian companies, which will hamstring economic growth that is already weak.

The Russian government said it would provide support to companies that had been sanctioned, without giving any details. "We are very attentive to our leading companies and their large workforces, very important jobs for our country," said Deputy Prime Minister Arkady Dvorkovich, Interfax news agency reported.

Write to James Marson at [email protected] and Scott Patterson at [email protected]