Norilsk seeks time to pay off debt mountain

Norilsk, the world's biggest nickel producer, is looking to ease the terms of the loan taken out on its $6.4bn (£4.3bn) purchase of Canadian rival LionOre in 2007. At the time, this was the biggest takeover of a foreign company by a Russian group.

Moscow-based Norilsk, in which oligarch Oleg Deripaska holds a 25 per cent stake through his mining firm, United Company Rusal, is looking to "reschedule" its debt, a source said. This means extending the repayment period of a loan.

London is the centre of world mining, and bankers in the City are keeping a close watch on what happens to the nickel giant. It is believed that bankers at the London offices of investment banks Rothschild and Lazard have been approached by Norilsk to help the miner sort out its debt difficulties.

However, Rothschild might not win the job because it is already advising Rusal on its $14bn debt burden, which could potentially result in a conflict of interest.

Norilsk arranged a $3.5bn loan through BNP Paribas and Société Générale at the time of the LionOre deal, which was then syndicated to a series of other banks. An industry source said that the collapse in metal prices meant that the company was in danger of breaching certain earnings covenants, or targets, required under the terms of the loan. However, a source in Russia downplayed the problems, arguing that Norilsk's LionOre loans do not mature until next year.

Listed on two Russian stock exchanges, Norilsk was subject to a protracted takeover battle last year. Rusal wanted to merge with Norilsk to create a national mining champion, but rival shareholder Interros objected. The companies agreed a truce late last year, and Mr Deripaska has since had to be bailed out by the Kremlin with a $4.5bn loan to pay off debts related to Rusal.

The other major proposed mining merger of 2008 was stalwart BHP Billiton's tilt at peer Rio Tinto, which would have been the second-biggest takeover in corporate history.

The move was abandoned as the markets deteriorated, and Rio Tinto has since looked to raise funds by selling a stake in itself worth $19.5bn to China's Chinalco. This would cover forthcoming debt repayments, but many shareholders have opposed the deal arguing that it would dilute their stakes.

These critics would rather the Rio Tinto board look to raise cash through a rights issue. One of the brains behind this idea pointed out that the recent rally in the stock market meant that a rights issue was becoming an attractive option.