Billionaire Plots Path to IPO With Cheap Russian Power for Smelters, Data Centers

Yuliya Fedorinova (Bloomberg) -- En+ Group Ltd., overseeing Russian billionaire Oleg Deripaska’s commodity assets, is laying a path to a London share offer using its cheap hydropower to fuel businesses from aluminum smelting to data centers.

"En+ will develop as a vertically integrated group, focused on two symbiotic, integrated segments: energy and aluminum production," Chief Executive Officer Maxim Sokov said in an interview in Moscow. In addition, it’s expanding into power-hungry data centers with an eye to Chinese demand, he said.

The company, started in 2002, controls natural-resource assets in Russia including utility EuroSibEnergo OJSC, Siberian coal mines and 48 percent of aluminum maker United Co. Rusal, consumer of half the energy the group produces. In the past three years, En+ has been trying to transform itself from a mere holding company into an operating business, Sokov said.

In January, Deripaska said the company was planning an initial public offering soon. Sokov declined to comment, only saying the group "is considering various instruments, including public capital markets" to raise funds for refinancing. En+ aims to cut its debt, now standing at more than $5 billion.

Those borrowings, which don’t include Rusal’s debt, are predominately held by Russian banks and mostly mature in 2021, Sokov said. Even though this is covered comfortably by group cash flow, En+ wants to reduce net debt to earnings before interest, taxes, depreciation and amortization to the industry average of 3 in the next three to five years.

Low Cost

With among the world’s lowest operating costs, the company plans to leverage its hydropower to expand into other areas. The group has excess energy capacity, allowing it to boost output without additional investment, Sokov said.

New projects include Rusal’s Boguchany aluminum smelter, with a first phase commissioned, and its Taishet smelter. "The timeline for completing these projects will depend on aluminum prices but we hope they will become a reality in around five years," Sokov said.

En+ also plans to start up its first commercial data center, focused on cloud services, in Irkutsk in May and is considering building more in Siberia. At first, customers will be local but the company plans to enter the Chinese market with the help of its partners Huawei Technologies Co. and Centrin Data Systems. Blockchain companies are potential customers, according to Sokov.

The Russian company originally planned to open its first data center in 2015.

More demand for En+’s power may come from other companies in Eastern Siberia including MMC Norilsk Nickel’s Bystrinsky copper project and Polyus PJSC and Rostec State Corp.’s Sukhoi Log gold operation, Sokov said.

Aluminum prices, up more than 30 percent in the past year to over $1,900 a metric ton, are probably "sustainable" and may keep rising as China curbs coal-power production, affecting its output of the metal, according to Sokov. Rusal’s shares, after gaining 44 percent in Hong Kong trading in the same period, don’t yet reflect the gains in aluminum prices, he said.