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Enquiry THURSDAY, 13 March 2008

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Web of mystery surrounds Rusal listing


By Catherine Belton



When Oleg Deripaska's UC Rusal floated plans for a $9bn-plus listing last year, the share issue from the outset was a test case for whether a company forged out of an industry once wracked with crime could win a London listing. The flotation had already been delayed last September when its shareholders - including Mr
Deripaska, who owns 66 per cent of UC Rusal via his vast Basic Element industrial
conglomerate - cited poor market conditions for the postponement.
Now, as Rusal moves to expand via a merger with Norilsk Nickel, the suggestion by a senior executive at Basic Element that the company could seek a listing in Hong Kong over London because of tightening regulatory requirements suggests deeper-seated problems are to blame.
The float of what is one of the world's biggest aluminium producers has been dogged by legal claims from the start. But by far the biggest shadow has been cast by Michael Cherney, a controversial founding father of Russia's aluminium industry, who has laid claim to a 20 per cent stake in UC Rusal, the holding he claims is owed from what he describes as a 50-50 partnership with Mr Deripaska for most of the 1990s.
Mr Cherney last month filed an amended claim in the London High Court for the stake and filed for permission for the suit to be served on Mr Deripaska outside the UK, or on his London lawyers, the Financial Times has learned. In addition, documents set to be filed as part of the claim, and seen by the FT, provide a partial view for the first time of what Mr Cherney claims was their 50:50 ownership of aluminium holdings via a Liechtenstein foundation, Radom.
Mr Deripaska's spokesperson said his client's position was that "he does not owe Mr Cherney any money and Mr Cherney does not have and is not entitled to a share in Rusal".
Both sides, however, appear to be engaged in a game of chicken, with it being advantageous to neither side to end up in court.
For Mr Deripaska, keen to shake off his past rise through an industry scarred with 1990s-era gangland wars and reposition himself as a leading Russian industrial titan, any investigation of this era in court could open up a can of worms.
Mr Deripaska has denied in an interview with the FT that he ever worked in partnership with Mr Cherney. "This person has nothing to do with my business," he said. Mr Cherney could also face problems in court: The March 2001 agreement on which Mr Cherney rests his claim, seen by the FT, is laid out on two pages only.
It sets out a deal in which Mr Cherney first of all agrees to sell 17.5 per cent of Sibirsky Aluminium, or Sibal, to Mr Deripaska for $100m, while Mr Deripaska is also bound to pay off $150m in debt owed to a trading company owned by Mr Cherney. The second part of the agreement binds Mr Deripaska to pay Mr Cherney for a 20 per cent stake in Rusal, the company that Sibal was merged into, within five years of the date of the agreement. The agreement does not even lay out important details such as whether it is to be governed by English law. Nor does it specify in which currency the monies are to be paid, although the
court document refers to US dollars.
The claim filed in the London High Court, seen by the FT, asserts the agreement maps out a deal in which "Mr Deripaska would hold 20 per cent of the shares in Rusal for Mr Cherney" and in which "Mr Deripaska was to pay a first instalment of some $250m as an advance payment."
The claim is not clear about the date when the agreement was reached or about whether it was signed in the Lanesborough or the Berkeley Hotel in London.
Documents seen by the FT, however, map out their joint holdings in Sibal, via Radom, a Liechtenstein Foundation. It is not clear what happened to Radom after 1999.
A letter to Radom's directors in Liechtenstein signed by Mr Deripaska maps how a vast web of offshore companies that gathered aluminium trading profits was held by a Luxembourg-based parent company, Alincor SA. In the letter, dated April 26 1999, Mr Deripaska's legal attache, Stalbeck Mishakov, instructed the Liechtenstein directors that the Alincor "shares will be later transferred to the shareholders of the Radom Foundation after we decide in what way they can hold directly the
registered shares of Alincor SA".
Mr Deripaska held 50 per cent of Radom through his Cole Foundation, while Mr Cherney held the remaining half through his Galenit Foundation, according to Radom's founding declaration dated October 31 1997.
A memo on details of a meeting between Mr Deripaska and his partners with the
Liechtenstein directors at Syndikus Treuhandanstalt on December 14 1998 says: "Mr
Deripaska signs the contract for a mandate for Cole Foundation ... with him being placed as first beneficiary, his mother as second beneficiary and Pavel Ezoubov - as the third".
It says Mr Deripaska was signing all payment orders for the Radom group. The partnership - which Mr Cherney says began in 1994 - hit problems when Russian anti-trust authorities began to examine a deal in which Mr Deripaska sought to merge Sibal with Roman Abramovich's Russian Aluminium, Mr Cherney said.
He said Mr Deripaska had told him the Russian authorities would not approve the deal if Mr Cherney was involved.
Mr Cherney, who by that time was living outside Russia in Israel, had fallen afoul of the Russian authorities. An interior minister in the late 1990s had named him in connection with organised crime.
Mr Cherney says there was a campaign by his business enemies to blacken his name. Mr Deripaska's spokesperson said he would not be commenting on the detail of the case because there was a legal process.
A previous attempt to serve Mr Deripaska's bodyguard with the suit in London was found to be invalid after a judge ruled this summer that Mr Deripaska was not domiciled in the UK.

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