Greater tension could do systemic harm to Russian firms-Norilsk

Reuters

By Silvia Antonioli

LAUSANNE, Switzerland (Reuters) - Any worsening of tension between Moscow and the West that leads to stiffer sanctions would do systemic damage to Russian companies by deterring investors and making borrowing more difficult, a Norilsk Nickel executive said.

Russia's annexation of Ukraine's Crimean peninsula has marked the biggest East-West crisis since the Cold War and prompted the United States and Europe to impose sanctions.

Norilsk Nickel, the world's largest nickel and palladium miner, has not been hit by the political tension so far, but all Russian companies would suffer should the situation escalate, its deputy chief executive officer for government and investor relations said in an interview.

"The impact would be felt if the situation further aggravated and there would be some systemic implications for companies, like for example a decrease in the ratings...lack of interest from investors, an exodus of some of the investors from the shareholder base, tightening of the terms of financing," Andrei Bougrov said.

"All this we do not see at the moment. But this is more of a systemic issue that may or may not evolve. One has to trust the politicians that they will be able to find a solution."

So far the sanctions have targeted Russian President Vladimir Putin's closest political and business allies and Russian Bank Rossiya, which Washington says is the personal bank for senior officials of the Russian government, including Putin's inner circle.

Western powers said many parts of the Russian economy could be targeted if Russia moves beyond Crimea into eastern Ukraine, including the financial services sector and the key energy, defence and mining sectors.

Some players in the mining industry see the possibility of sanctions on Russian exports of metals - which would hurt the Russian companies but could also disrupt international supply chains. Measures could also target individuals who head some of the companies.

GO EAST?

Analysts said some Russian companies are trying to sell more of their products to China and other parts of Asia to reduce their exposure to potential Western sanctions.

Norilsk, with a stock market value of $27 billion, sells about 55 percent of its production to Europe, 25 percent to Asia and 10 percent to the United States.

The remaining 10 percent is sold domestically or to exchanges.

Norilsk is currently negotiating sales of platinum group metals (PGMs) with some Chinese clients but Bougrov said he was not sure whether they would be able to sell them higher volumes, as this depends on whether they find an agreement over prices.

"We can offer them quite a substantial amount, it just depends how much they need...we are also listening to the Chinese partners to see how much they can absorb. That's the process of negotiating volumes and prices," Bougrov said, adding that this was part of the company's normal commercial strategy.

Norilsk, partially owned by Russian tycoons Vladimir Potanin and by Oleg Deripaska through indebted aluminium producer Rusal, mines some of the world's largest nickel-copper-palladium deposits in Russia's far north.

To cope with weaker metals prices, the company trimmed spending last year and focused on its lucrative assets in Russia's Arctic while selling off assets in Australia, South Africa and Botswana.

"We are moderately optimistic about PGMs in the medium term. Nickel is historically more volatile. There may be period of increase price for nickel but up to a certain level. PGMs are more robust," Bougrov said.

(Editing by Anthony Barker)

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