US may lift sanctions from another of Deripaska's companies

US may lift sanctions from another of Deripaska's companies
Oleg Deripaska Photo: Alexey Druzhinin / RIA Novosti

Oleg Deripaska should relinquish control of GAZ Group of Companies so that sanctions against it are lifted, the US Treasury said. Earlier, the billionaire agreed to reduce the stake in his other company - En+.

The US Treasury allowed the possibility of lifting the sanctions imposed on Oleg Deripaska’s GAZ Group of Companies if the billionaire gives up control over it. This is stated in the explanatory note of the Office of Foreign Assets Control (OFAC), dealing with sanctions, which was published on May 22.

"Consistent with OFAC regulations, parties may be removed by demonstrating a change in the circumstances that led to their designation. In the case of GAZ Group, absent other adverse information and consistent with the facts and circumstances of any petition for delisting, the path for the United States to provide sanctions relief is through divestment and relinquishment of control of GAZ Group by any Specially Designated Nationals, including Oleg Deripaska," the US Treasury explained.

Furthermore, OFAC mitigated the terms of sanctions for GAZ Group, extending the period within which American individuals and legal entities can terminate transactions with the company. If earlier the deadline for termination of cooperation with the Russian company was June 5, now the terms of partnership with GAZ Group can be extended until October 23, 2018. But this applies only to contracts and operations that were started or agreed upon before April 6, that is before GAZ Group was included in the sanctions list.

OFAC clarifies that sanctions against GAZ group can be canceled if Oleg Deripaska or any other natural person / legal entity on the SDN list cedes control over it. The same clarification now applies to UC Rusal (the previous statement, which promised the lifting of sanctions with Rusal, concerned only Deripaska’s control). This means that the US Treasury considered Deripaska's plan to reduce the stake in En+ below 50% to delist Rusal to be insufficient. It will also be necessary that En+ itself ceases to control Rusal (to this end, it is required to change the shareholder agreement of Rusal, under which En+ exercises control over the aluminum company, owning less than 50% of the shares).

Deripaska’s spokesperson refused to give comments on the request of RBC.

Previously, similar conditions were voiced by Washington regarding the lifting of sanctions from another Deripaska’s company, one of the world's largest producers of aluminum UC Rusal. Since Deripaska controls Rusal through En+ (it also fell under sanctions), the so-called "Barker Plan" (named after Gregory Barker, Chairman of the Board of Directors of En+) was adopted at En+. The objective of the plan was to reduce the share of Deripaska in En+ to below 50%, which should lead to the cancellation of his indirect control over Rusal.

In late April En+ informed that Deripaska "fundamentally agreed" to lower the stake in En+ "to below 50%." On May 18, the billionaire left the Board of Directors of En+. Besides, he committed himself not to be re-elected to the governing bodies of UC Rusal.

On May 21, UC Rusal issued a warning to shareholders and potential investors that the threat of adverse impact of sanctions on the company's business remained.

April 6, Deripaska, En+, UC Rusal and other enterprises of the businessman were included in the US sanctions list (SDN). After that, UC Rusal said that the sanctions could cause technical defaults on its debt obligations; international traders stopped buying the company's aluminum, Western exchanges suspended trading in its metal.

Later, the US Treasury announced the possibility of lifting sanctions from UC Rusal in the event of Deripaska's refusal to control the company. However, the former senior Adviser of OFAC, Atlantic Council expert Brian O'Toole, in a conversation with RBC explained that the reduction of Deripaska's shares in En+ to below 50% would not necessarily lead to the cancellation of sanctions. According to O'Toole, after the deal, OFAC will study whether Deripaska still controls the company and continues to benefit from it. In addition, he added, other factors and considerations will undoubtedly be taken into account as well.

65.56% (ordinary shares) of GAZ PJSC are owned by Russian Machines LLC (Basic Element Group), follows from the data of GAZ Group on March 31, 2018. Both Russian Machines and Basic Element are featured in the US sanctions list as enterprises, controlled by Deripaska. Another 17.5% of GAZ belong to management company Ingosstrakh-Investments, but on April 6, the day of the introduction of sanctions against GAZ Group, the share was sold to Moscow Investtekh LLC. As GAZ shares are traded on the Moscow Stock Exchange, among the minority shareholders of the company are (or were) foreign investors, for instance, at the end of 2017 2.2% of shares belonged to the Norwegian sovereign fund.

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