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Khloponin Talks Up Norilsk-Alrosa Merger
Speculation over a government-led plan to merge metals giant Norilsk Nickel with partly state-owned diamond producer Alrosa gained momentum on Wednesday as the former head of Norilsk, Alexander Khloponin, confirmed talks had taken place.
The possibility of a merger has attracted much attention in recent weeks and has been interpreted as a state move to gain greater control over the metals sector, which saw a run of murky privatizations in the 1990s.
In addition to confirming talks between the companies, Khloponin, who is now governor of the Krasnoyarsk region, said the deal was being closely monitored by the Kremlin.
"Believe me, today the president and the government are strictly controlling the situation," Khloponin said, adding that "no attempts to sell Norilsk assets abroad will take place."
Both Norilsk Nickel and Alrosa declined to comment. A number of market watchers said Khloponin's comments had been used to manipulate Norilsk's stock price.
Officials at the Finance Ministry -- whose head, Alexei Kudrin, is also Alrosa board chairman -- said they were at a loss to comprehend what shareholder negotiations Khloponin was referring to.
"In the Finance Ministry, such initiatives were not discussed, nor in other ministries, as far as I am aware," Andrei Saiko, a spokesman for the Finance Ministry, said Wednesday.
Shares in Norilsk fell by 1.2 percent on MICEX on Wednesday, marking a 15 percent drop since the start of the year.
Khloponin's comments come in the wake of speculation in recent months over a possible tie-up between Norilsk -- the world's largest producer of nickel, platinum and copper -- and Alrosa, the Kremlin's only foothold in the metals and mining sector.
Norilsk is majority-owned by Interros, the holding company of Vladimir Potanin and Mikhail Prokhorov.
The merger would create a multibillion-dollar commodities giant, helping turn it into a global player in the same league as Anglo American and Rio Tinto, analysts said.
According to investment bank Metropol, Alrosa is worth $5.3 billion, while Norilsk Nickel's market capitalization stands at around $17 billion. The diamond producer's Kremlin connection could give it added value in a tie-up, Metropol said.
While details remain sketchy on the possible future structure of the company, Khloponin hinted at one possible scenario.
"If the merger became possible, then in my opinion it would work like this: the government holds 25 percent, the investors 75 percent," he said.
The governor did not clarify whether a holding company would be formed to include both Alrosa and Norilsk, or whether the plan was for one company to take over the other.
"The government obviously wants a controlling stake, but how it will get it is not understood," said Vasily Nikolayev, a metals analyst with Troika Dialog.
Chris Weafer, chief strategist with Alfa Bank, said it was unlikely that the government had worked out a clear idea for Alrosa's acquisition of the nickel producer, adding that snippets of information from rival Kremlin factions were going to keep trickling through in the meantime.
"It would not be usual for a governor to let this slip," Weafer said.
A number of Moscow brokerages said Khloponin's comments were being used Wednesday to drive Norilsk's share price.
"We note that the governor, Alexander Khloponin, is the former CEO of Norilsk Nickel and has remained very close to core shareholders since leaving his post to go into politics in 2002," brokerage Aton said in a research note.
The comment was tempered to say that "Khloponin went on to say that a deal would not happen in the near future."
Troika's Nikolayev saw the news as more substantial. "I think it's being discussed. It sounds very serious," he said.
"The move would make Alrosa and Norilsk Nickel into a great force. But there will be no production synergy or benefit in terms of business," he said.
"The initiative is obviously coming from the government. But it's also positive news for Norilsk. Back tax issues and a review of privatization immediately fall off the agenda," said Denis Nushtayev, a metals and mining analyst with Metropol.
All analysts agreed the possible merger was still far off, pending the completion of Alrosa's corporate restructuring as well as the state's building up a controlling stake in the diamond company.
Financing will also need to be secured. Weafer said the government was likely to opt for a market-based fund-raising scheme for Alrosa, as was the case with Gazprom's purchase of Sibneft last year.
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