In December 2009, the world’s biggest aluminum producer, United Company RUSAL, announced it had successfully reached an agreement with creditor banks to restructure debts totaling US$16.8 billion. Andrei Mitrofanov, a director in KPMG in Russia’s Restructuring practice, acted as an advisor to RUSAL’s lenders throughout the negotiations. It was, as he explains, his first experience of a restructuring on this scale, having transferred from a different department to assume management of the UC RUSAL project.
Why did you transfer from KPMG’s Transaction Services to Restructuring?
I transferred specifically to work on the UC RUSAL project. I joined KPMG in Russia from University in 2000 to work in Audit and moved to Transaction Services in 2005. The subsequent transfer to Restructuring was business-driven. I had deep experience in metals and mining, knew UC RUSAL’s business from previous engagements, experience with analysis of projections, and was therefore well placed to manage RUSAL’s restructuring.
Why was the restructuring necessary?
In 2008, the company faced significant liquidity issues. The global financial crisis and the subsequent economic downturn caused a drop in demand and prices for aluminum. Prices fell by about 60 percent. In the case of UC RUSAL, that meant the company was close to selling its products at a price lower than the cost of production.
How did KPMG become involved in the restructuring?
We were appointed by the lenders. The brief was to help them restructure the company’s debt from a financial analysis perspective.
What were the major challenges?
Perhaps the most immediately apparent challenge was the number of creditors involved in the process, around 70 to 80, including international banks, Russian banks, Russian Government and other companies. It was a complex situation. Within this project we had ten different work streams, including analysis of cash flows, short-and long-term forecasts, financial model review, documentation review and other. We issued around 100 reports on various aspects to our client. At any given time, there were up to 500 professionals working on the project on behalf of both the company and its creditors, including advisors to all the parties. Our restructuring plan was based upon the company’s projected cash flow and yet estimating this was a challenge since we were working in uncertain economic times.
What was the outcome?
The restructuring deal was signed in December 2009. It was agreed that RUSAL’s payments to its creditors would be partly linked to its performance. Hence, the importance of cashflow projections during the negotiations. This phase of the agreement will last four years, during which time most of the cash generated will go to creditors. After four years, the company will refinance.
How long did the operation take?
Approximately one year.
Did you work on debt-restructuring only or operational side also?
Our brief was to advise on the financial side of the debt restructuring. However, there were some operational issues that had to be addressed. For instance, we advised the lenders on certain cash management aspects of UC RUSAL.
Since the restructuring agreement is signed, has your involvement ended?
No. We have been asked by the lenders to take on a continuing role monitoring the company’s finances.
How has the department change affected your own professional development?
I think it has certainly enhanced my skills. The role that the banks asked us to take on was new to me and that was a challenge that had to be addressed. Also, I had to play a significant coordinating role. In terms of KPMG, the project was cross-advisory. At one time or another, we had people from all parts of the Advisory department working on the UC RUSAL project.
What has it meant in terms of your career progression?
Well, the work that we (KPMG Advisory) have done has been recognized. As a result of the UC RUSAL project, KPMG was named ‘Insolvency Advisor of the Year’ in Russia. And I was able to demonstrate my personal and technical skills and I was promoted to a Director position starting from 1 October 2010.
Andrei Mitrofanov, thank you very much.