Russian businessman Vladimir Potanin, the largest shareholder at Nornickel, said he was ready to discuss a possible merger of the mining giant with aluminum producer Rusal, in part as a defense against Western sanctions.

Potanin told RBC TV he had sent a letter on Monday, July 4, confirming his agreement to start merger discussions “because this allows the creation of a national champion. This allows us to even further diversify the shareholder base.”

He said the need to “acquire extra stability against sanctions” and the potential requirement for state support for projects in Russia were among reasons to discuss the deal, adding that the proposal came from the management of Rusal.

Rusal, the world’s largest aluminum producer outside China, did not immediately reply to a Reuters request for comment.

Hong-Kong listed shares at Rusal rose by 11.35% and shares in its largest shareholder En+ were up 9.1% in Moscow. Nornickel was down 2.3% in Moscow by 0826 GMT.

Western sanctions imposed on Russia over the war in Ukraine have not targeted Nornickel, the world’s largest producer of palladium and refined nickel. However, Britain last week announced sanctions on Potanin.

Nornickel’s and Rusal’s market values were $49 billion and $15 billion, respectively, as of the end of trade on Monday, according to Refinitiv Eikon data.

The Kremlin keeps a close eye on ownership changes involving Russia’s flagship companies.

“We know nothing about such notions,” Kremlin spokesperson Dmitry Peskov told Reuters when asked about Potanin’s merger comments.

US sanctions

Rusal was subject to sanctions imposed by the United States between April 2018 and early 2019 that caused a jump in global aluminum prices, and Washington removed Rusal from the sanctions list when its founder Oleg Deripaska agreed to relinquish control of it.

Deripaska, still on the US sanctions list, remains a powerful tycoon in Russia.

The potential deal is a risk for Nornickel’s future dividend payments and would provide limited financial synergies, analysts at BCS said in a note.

Potanin acknowledged a lack of production synergies but said the deal was justified by other arguments including both companies’ shift towards a “green economy.”

Potanin owns a 36% stake in Nornickel and has been its chief executive for 10 years. Rusal currently owns 26% of Nornickel.

Since Rusal bought its stake in 2008, shareholders at Nornickel and Rusal have been involved in several disputes over management of the mining giant, the size of its dividend payments, and investment.

Since the start of the Russia-Ukraine war, Potanin has already snapped up Rosbank from Societe Generale when the French lender exited the Russian market, before adding a stake in TCS Group. – Rappler.com