Will Rusal default on some liabilities due to new sanctions?

Saul Bowman
April 12, 2018

The sanctions introduced Friday against numerous Russian businessmen, officials and companies have caused sharp share price drops for sanctioned companies - most notably aluminum producer Rusal - but also the wider stock market, particularly banks which may be exposed to the sanctioned firms.

The metal advanced 3% on Wednesday to $2,266.50 a tonne by 11am on the London Metal Exchange (LME).

The meltdown came after US President Donald Trump on Friday announced sanctions against Russian oligarchs close to Vladimir Putin following the diplomatic crisis sparked by the poisoning of former spy Sergei Skripal.

Raiffeisenbank said in a note on Monday that the new sanctions are likely to force Rusal to redirect supplies, potentially affecting the company's margins. "Imagine how tight the world market is going to be if you lose a 10th of world supply, even for the short term".

The London Metal Exchange (LME) will suspend Rusal's aluminium from its list of approved brands from April 17 after some members raised concerns about settling LME contracts with sanctioned companies, LME Chief Executive Matt Chamberlain told Reuters. The block on Russian supplies adds to earlier import tariffs imposed by the United States to benefit American producers most.

The U.S. Treasury Department said investors have until May 7 to divest any stocks, bonds or other holdings of En+, GAZ (GAZA.MM) and Rusal.

The Russian rouble fell for a third day this morning as aluminium giant Rusal revealed two more directors had left its board.

"We expect the risk of secondary sanctions will impact well beyond just United States imports, and Rusal material will indeed be shunned by many non-US consumers and their financing banks", said Oliver Nugent, a commodities strategist at ING.

Comex said it has revoked the approved status for warranting and delivery of the company's brands against the futures contract.

Russian aluminium producer United Company Rusal Plc (0486.HK) on Wednesday said two of its non-executive directors resigned after the company's inclusion on a new list of USA sanctions targeting Russian companies and their owners.

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