A letter to a U.S. senator from Braidy Industries’ CEO Craig Bouchard sheds new light on the extent of the conversations he had with an eventual Russian investor in Braidy’s planned Kentucky aluminum mill.
Sen. Ron Wyden, D-Oregon, said the fact that they discussed a potential business deal while the Russian company was still under U.S. sanctions is “troubling.”
United Co. Rusal, which has agreed to invest $200 million in Braidy’s rolling mill near Ashland, sent a representative to Eastern Kentucky last year while the sanctions were still in effect, Bouchard told Wyden.
In response to an inquiry from Wyden, Bouchard described what led up to Rusal — a major aluminum company that’s partly owned by Oleg Deripaska, an oligarch with close ties to Russian President Vladimir Putin — deciding it would invest.
In his letter to Wyden, Bouchard referenced a December 2018 meeting in Ashland with a Rusal representative that happened before the U.S. government lifted the sanctions on Rusal and its parent company, En+ Group.
When the sanctions against Deripaska and Rusal were unveiled in April 2018, Treasury Secretary Steven Mnuchin issued a statement citing the Russian government’s “malign activity” around the world.
“Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities,” Mnuchin said.
Wyden serves as the ranking member of the Senate Finance Committee and raised national security concerns about Rusal’s investment in the mill earlier this year.
In a statement provided Tuesday to The Courier Journal, Wyden indicated he has continuing concerns about Braidy’s dealings with Rusal.
“Braidy Industries’ response raises additional questions regarding its relationship with Rusal,” Wyden said. “It’s troubling that the company was discussing a potential business deal with Rusal while the company was under sanction.”
A Braidy spokesperson on Wednesday expressed confidence that the company’s interactions with Rusal were handled properly.
“Braidy engaged sanctions counsel in Washington DC to review each step of the introduction process and subsequent agenda for all meetings,” the spokesperson said in a statement provided to The Courier Journal. “We have no concerns.”
In Bouchard’s letter to Wyden, he invited the senator to see the company and community in Ashland and said Braidy’s future mill will be “the most environmentally sustainable aluminum rolling mill” in the country.
“In Northeast Kentucky, we aren’t about politics,” Bouchard told Wyden. “The impact studies predict 38,000 families in three states will benefit from our greenfield project. They need us.”
However, Braidy is still working to secure the financing it needs to build the roughly $1.7 billion mill.
Last week, Bouchard told WDRB News the project still needs “a few hundred million dollars.”
“I can’t give you an exact number because money is only money when it changes hands,” Bouchard told WDRB.
Bouchard has praised Rusal’s decision to invest in the mill and supply it with aluminum.
Rusal is investing the $200 million through a subsidiary. However, documents Braidy filed this summer with the U.S. Securities and Exchange Commission said a large chunk of that money is contingent upon Braidy securing a $300 million contribution of its own.
They agreed a team from Rusal should visit
Last month, Wyden sent Bouchard a letter that included a series of questions about Braidy’s past contact with Rusal.
He asked for answers by Nov. 1, which Bouchard provided in his Oct. 31 letter.
He told the senator Braidy’s discussions with Rusal started in December 2018 when a “leading industry analyst” introduced the two companies.
The mill is slated to produce aluminum sheet for cars and other products once it’s complete. Bouchard said Braidy learned Rusal was the sole business capable of supplying 125,000 tons of “high-quality, low-carbon” slabs of aluminum per year for the mill’s operations.
However, Rusal and its parent company were still under U.S. sanctions at that point.
Bouchard told Wyden that Braidy “consulted with sanctions counsel to obtain guidance on how to proceed without violating any restrictions.”
Bouchard went on to say he had a “brief introductory call” in early December 2018 with Rusal’s commercial sales director.
The call concerned whether there were opportunities for the businesses to work together after the sanctions were lifted, and Bouchard said he invited Rusal to bring someone to Ashland to see what was planned for the project.
Later that month, that’s exactly what Rusal did.
In his letter to Wyden, Bouchard said Rusal’s “Director of Flat Rolled Aluminum, based in the United States,” visited Ashland on Dec. 18, 2018, and “received tours and briefings on the status for the enterprise build.”
“He provided feedback to Braidy Industries leadership that the management team and the company’s progress were impressive and that Rusal would continue to track the company,” Bouchard said. “This meeting was introductory and for informational purposes only, with both parties acknowledging the U.S. sanctions on Rusal restricted their ability to engage in transactions at that point and with the understanding that the potential lifting of the U.S. sanctions was pending.”
Two days later, Bouchard said news reports confirmed Braidy’s understanding that President Donald Trump’s administration intended to remove the sanctions on Rusal. In anticipation of that possibility, he made plans to meet with another representative from Rusal.
That meeting happened on Jan. 15, 2019, in Zurich, Switzerland.
Braidy paid for his travel, Bouchard said. He had dinner there with Rusal’s commercial sales director, and they agreed a team from Rusal should come to Ashland to discuss the mill if the Trump administration got rid of the sanctions.
The sanctions were lifted later that month, and Rusal sent a “team of subject matter experts” to Ashland and to Framingham, Massachusetts, where a subsidiary of Braidy’s called Veloxint Corp. is based.
Rusal’s team recommended conducting “a deep due diligence process,” Bouchard said. That took about six weeks, after which Rusal’s decision to invest in the mill was announced in mid-April 2019.
Bouchard previously told TIME and The Washington Post about his dinner in Zurich with a Rusal executive and the subsequent visit the Russian firm’s representatives made to Ashland.
But neither of those stories mentioned the December 2018 visit to Ashland by a Rusal representative that Bouchard discussed in his recent letter to Wyden.
In his letter, Bouchard said neither he nor any other Braidy representatives have spoken to Deripaska, the oligarch who is still under U.S. sanctions.
He also pointed out that Rusal is just a minority investor in the mill project and has no positions in Braidy Industries.
People in Ashland and the surrounding region, which has suffered economically for years, are hopeful Braidy will become a mainstay employer and attract other businesses to the area.
On its website, Braidy says the mill will generate up to 1,000 construction jobs and provide about 600 full-time, well-paid positions once it’s complete.
Some people hoping to be the first in line to work for Braidy have enrolled in a program at Ashland Community and Technical College that was developed in partnership with Braidy. Last month, Braidy announced it already intends to hire 15 graduates from that program to work at two of its subsidiaries, earning base salaries totaling $65,000 annually.
In his letter to Wyden, Bouchard indicated Rusal’s agreements to invest in and supply aluminum to Braidy’s mill will allow for the creation of “600 permanent jobs, $2.8 billion of economic impact for Kentucky, and over $390 million of combined economic uplift for the neighboring states of Ohio and West Virginia.”
Raising money for the mill
Kentucky’s state government became one of Braidy’s first investors in 2017, contributing $15 million.
Braidy has said in past public statements that building the mill is expected to require around $500 million in equity and over $1 billion in debt financing.
In a July 2019 statement provided to The Courier Journal, Bouchard said Braidy “has raised equity, binding commitments or signed letters of intent for the majority of capital required for this project.”
Rusal’s decision to invest $200 million in return for a 40% stake in the mill appears to be the biggest specific investment Braidy has publicly announced so far.
As part of that arrangement, a subsidiary of Rusal’s called Allow Rolled Products LLC reached definitive agreements to invest that money in phases, according to a July 2019 SEC filing by Braidy.
Those phases include:
- An initial $60 million contribution that was made in July 2019
- Ensuing monthly installments of $5 million for eight months
- A final $100 million contribution
There are certain conditions Braidy has to meet as part of the deal.
Rusal’s subsidiary can suspend or terminate its obligation to make the final, $100 million payment (or its monthly, $5 million installments) if Braidy has failed to secure its own $300 million contribution by the time they have surpassed the “fourth monthly anniversary” of the July 5 initial closing of the investment deal, according to Braidy’s SEC filing.
That anniversary appears to have passed.
The Courier Journal submitted several questions to Braidy for consideration, including whether the company has secured its own $300 million contribution and whether Rusal’s subsidiary has specified when it plans to provide the final $100 million of its investment.
In a statement, Braidy indicated there is no cause for concern.
The statement was critical of The Courier Journal’s reporting on “non-existent deadlines” and said Braidy is “proceeding to financial close on our expected timeline with our world-class partner, Rusal.”
“Our private fundraise has gone well,” Braidy said. “We invite the C-J (Courier Journal) to help us rebuild Appalachia and not look down upon it with attempts to compromise our efforts.”
The Courier Journal didn’t receive a response to an October email it sent Rusal’s press center.
‘Overblown’ national security concerns
Several Democrats in Congress have suggested Rusal’s investment in Braidy could pose national security risks, but experts say that’s unlikely.
Wyden and seven other congressional Democrats sent Treasury Secretary Mnuchin a letter earlier this year calling for a federal review of the deal by the Committee on Foreign Investment in the United States (CFIUS).
“Russia remains a central threat to U.S. national security and prosperity and is, along with China, one of our most aggressive and capable adversaries. The proposed investment … raises serious questions of national security,” they wrote to Mnuchin.
However, University of Louisville Professor Charles Ziegler — a specialist on Russia and international politics — pointed out that all sorts of countries invest in the U.S. He also said as far as big business goes, $200 million is “not a lot” of money to invest.
The Russian government does have connections to major businesses owned by oligarchs like Deripaska, Ziegler said. Putin brought the oligarchs — “these super-rich men … who made big fortunes in the wild 1990s” after the Soviet Union collapsed — under control after he rose to power.
There’s an expectation that the oligarchs’ businesses can earn profits and make investments wherever they want, Ziegler said, while also doing things that will either benefit the Russian state or at least won’t adversely affect Putin’s goals for the state.
But Ziegler isn’t buying into the fears that Rusal’s investment in Braidy could give Russia’s government a problematic foothold in the American aluminum industry.
“I see it as overblown, absolutely,” he said. “In the greater scheme of things, to be honest, I don’t think it means all that much, and I doubt that Putin is even aware that his oligarch friend’s company is thinking about a $200 million investment in Ashland, Kentucky.”
Thomas Graham, a distinguished fellow at the Council on Foreign Relations, said Rusal is one of the biggest aluminum producers in the world, and its decision to do business with Braidy is based on the expectation that it’s a good commercial investment.
“They want to make money,” he said.
Any time there’s a proposed Russian investment in an industry or company in the U.S. that has national security implications, Graham said it ought to be looked at closely.
However, he said it’s hard to see what direct benefit the Russian government gets from an investment in a Kentucky aluminum plant.
Graham noted that there’s already an agency tasked with evaluating these kinds of investments: The Committee on Foreign Investment in the United States (CFIUS), which Wyden and the other Democrats want to review the Rusal-Braidy deal.
“CFIUS looks at investments like this that could have national security implications and reaches a judgment as to whether the investment needs to be blocked or modified in some way to deal with national security concerns,” Graham explained.
Sebastian Mallaby, the Council on Foreign Relations’ senior fellow for international economics, warned against any “political second-guessing” of CFIUS.
If the committee hasn’t blocked a deal, Mallaby said, it isn’t up to Congress to assert some sort of rationale for getting in the way of a foreign investment.
“If the sanctions were lifted, then they’re lifted,” he said of the sanctions the American government removed from Rusal and its parent company. “I mean, once you’re out of jail you should have a clean slate, and it’s not appropriate to continue to erect obstacles.”
Earlier this summer, an official from the Department of the Treasury told Wyden in a June 2019 letter that they don’t comment on whether a review like the one he and several other Democrats requested for the Rusal-Braidy deal “has occurred or will occur.”
“Confidentiality is critical to the effective functioning of the CFIUS process,” the official said.
Regardless, Wyden didn’t stop scrutinizing Rusal’s involvement with Braidy, as evidenced by his letter to Bouchard last month.
And his statement to The Courier Journal this week indicates he still has concerns.
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Written by Morgan Watkins. Cross-posted from the
Courier-Journal via the Kentucky Press News Service.