Two Russian billionaires who own stakes in Norilsk Nickel are looking to create a new mining firm which would become a major player in the industry, it was confirmed yesterday (19th January).

Vladimir Potanin and Oleg Deripaska will extend an offer to other companies which would see them exchanging debt for a slice of a bigger firm, partially-owned by the Kremlin.

Larisa Zelkova, spokesman for Mr Potanin's investment vehicle Interros, was quoted by Reuters as saying: "We are preparing proposals on swapping debt for a stake in a big company - a Russian BHP Billiton."

The move is motivated by the fact that many Russian companies - which posted sizeable profits when commodity prices were booming - are now saddled with huge debt repayments as the financial crisis deepens.

As Kevin Dougherty, Co-Manager of the Pharos Russia Fund, explained in an interview with Reuters: "The impetus for this deal is that some of these companies want state support servicing their debt and see this mega-merger as an easier path than undergoing individual restructuring.

"The state is also keen to form such a national champion, so this fits in with their interests as well."

If the proposed company comes to fruition, the state would acquire a blocking stake of at least 25 per cent plus one share through the merger of Norilsk and a number of steel makers, according to business daily Vedomosti.

The newspaper reported that Metalloinvest - owned by Alisher Usmanov, who has previously expressed an interest in aligning his assets with Norilsk's - Evraz Group and Mechel were in a draft proposal sent to Russian Deputy Prime Minister Igor Sechin.

However, some analysts have expressed concerns over the viability of the deal, with some suggesting that the owners of the latter two firms would not be interested in participating.

Furthermore, the developments are being viewed with suspicion in some quarters as they are seen as a potential alternative to the previous attempts to merge Norilsk, UC RUSAL and Metalloinvest.

"The motivation behind the proposal may be to build support or create a broader dialogue and then switch to other, more favourable structures or proposals for Potanin and Usmanov," commented Alfa Bank in a research note, quoted by the news provider.

Source:

UPDATE 2-Russian tycoons plan state-backed metals giant (19/01/09)
http://www.reuters.com/article/marketsNews/idUSLJ56456920090119?sp=true