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Article Excerpt
IN BRIEF
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*** Russian President Dmitry Medvedev signed a decree recognizing the breakaway republics of Abkhazia and South Ossetia as independent states on August 26.
Medvedev called on other countries around the world to follow suit. The move is unlikely to improve already strained relations with the West as Russia has also called for a review of its cooperation with the NATO military alliance. Cooperation in a number of key areas looks set to be suspended sparking fears of Cold War II.
The slide on the Russian stock market accelerated after Russia the announcement of recognition, with blue chips among the lead decliners as the RTS hit its lowest level in two years.
Russian Prime Minister Vladimir Putin's spokesman said on August 27 that foreign countries "need cooperation with Russia to the extent that Russia needs cooperation with them."
Dmitry Peskov was commenting on suggestions in some countries for economic pressure on Russia because of its recent conflict with Georgia.
"Voices can be heard now to the effect that measures almost going as far as sanctions of some kind should be used against Russia," Peskov told Interfax.
"Russia, where Strategy 2020 is being developed and implemented, is a country that is focused on its own economic development, on basing its economy on innovation and on imparting new dynamics to its economy," he said.
"For this reason, Russia is the last country in the world to want confrontation of any kind," Peskov said.
"A country whose objective is to qualitatively raise the living standards of the population needs more than others do to continue cooperating with its foreign partners in all fields," he said.
But "Russia is a country with a powerful economy," and "for this reason other countries need cooperation with Russia to the extent that Russia needs cooperation with them," the spokesman said.
"Any thoughtless decisions to curtail cooperation in some fields or others will undoubtedly boomerang on the interests of the countries that make such decisions," he said.
*** The board of directors at Arctic mining and smelting giant MMC Norilsk Nickel decided this week to buy back 4.17% of the company's charter capital for a total of 49 billion rubles in an apparent attempt to reverse declining market capitalization. Shares rose over 5% on the announcement. RUSAL earlier voted against holding the buyback with Norilsk funds, saying all extra cash should be paid out in dividends instead.
*** Severstal-Resources, the upstream division of Russian steelmaker Severstal, this week announced it is acquiring the U.S. company PBS Coals Corporation for $1.3 billion. The transaction is conditional on Penfold Capital Acquisition Corporation consummating a business combination with PBS for an all cash purchase price of 8.30 Canadian dollars per share and is expected to be closed by mid-October. The acquisition is seen as vital in securing the viability of Severstal's recent U.S. steelmaker purchases, as PBS will supply approximately half of Severstal's annual metallurgical coal requirement in North America, which totals 5 million tonnes.
*** Russia's Alfa Group has decided not to acquire assets belonging to Canada's High River Gold (HRG), which develops gold and silver fields in Russia, with the strategic investment agreement with Veromart Securities Inc., an indirect wholly-owned subsidiary of Alfa Group, having been terminated due to market conditions in the precious metals sector. HRG had said it would place up to 32% of its stock (160 million common shares) in favor of Veromart.
*** Polymetal, Russia's biggest silver producer and a major gold producer, this week purchased a 100% interest in Urals Exploration Company (UEC), which holds the exploration and mining license for Degtyarskoye gold-silver deposit, from Russian Copper Company (RCC) for $6.25 million. Gold and silver mineralization at the deposit is believed to be low but high in quality.
*** Kuzbass-based Belon coal and metals group this week announced it is planning an IPO on the London Stock Exchange in H109. Belon, which is already listed on the RTS and MICEX, would become the first Russian company to float on the LSE. Belon is splitting shares at a ratio of 1:100 in preparation for the IPO and is expected to decide on a free float of around 15%. Steelmaker MMK currently holds just over 40% of shares.
*** Following from speculation last week, the Russian Union of Industrialists and Entrepreneurs (RUIE) confirmed this week that the European Union could restrict imports of Russian scrap metal if export duties are raised. Tightened quotas or other restrictions could be applied if Russia does decide to raise export duties for ferrous scrap, something it is bound not to do under the current agreement with Brussels. An increased export tariff is believed to be desirable for steelmakers, but resultant falling prices on the domestic market would hit scrap firms. RUIE also said many other issues in the scrap market need to be addressed, such as the lack of reliable information on production and consumption and rail freight charges.
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Norilsk Nickel board decides to buy back 49 bln rubles worth of stock
MOSCOW. (Interfax) - The board of directors at MMC Norilsk Nickel decided on August 22 to buy back 4.17% of the company's charter capital for a total of 49 billion rubles, the company said in an August 25 statement.
"Norilsk Nickel intends to buy back its own shares in order to support the company's securities, which went down in price significantly in the last several months. This price drop was impacted mostly by factors that are irrelevant to the company's fundamentals," Norilsk Nickel CEO Vladimir Strzhalkovsky is quoted as saying in the statement.
Strzhalkovsky also emphasized Norilsk Nickel's strong growth potential, which the new management team intends to fulfil to the maximum extent, the statement says.
Shares will be bought back from shareholders of Norilsk Nickel on a pro rata basis at 6,167 rubles (around $254) per share, which is a volume weighted average share price for the period from February 15, 2008 to August 15, 2008, according to MICEX data, the statement says.
United Company RUSAL, which has owned a 25% stake in Norilsk Nickel since spring 2008, voted against Interros Holding's proposal to use Norilsk funds to buy back the company's shares at the board meeting on August 22.
"UC RUSAL has consistently advocated that funds not used in investment programs should be distributed among all shareholders by way of a dividend. We believe that a dividend payment is the most effective form of using unallocated cash funds in the interest of all shareholders. Furthermore a dividend payment would not infringe upon the rights of minority shareholders who have no intention to sell their shares," UC RUSAL said in a statement.
A buyback, to a certain extent, is equivalent to dividend payments, analyst surveyed by Interfax said.
"The decision to buy back 4.2% of shares on the market is essentially equivalent to dividends," Uralsib analyst Dmitry Smolin said.
But the announced price of the buyback, with a premium of more than 25%, will not have such a big impact on the income of minority shareholders, he said.
"Minority shareholders are happy, but the effect will be minimal. Since the 25% premium makes the buyback attractive for many, the number of tendered shares will probably exceed 4% and shareholders will probably be unable to sell all shares, only a small portion," Smolin said.
"Therefore, the positive effect is fairly limited," he added.
"Essential, principal shareholder Interros, which made the decision at the board meeting, is thus trying to raise the company's market capitalization, which has fallen substantially recently," Smolin said. Interros wants to raise Norilsk Nickel's capitalization "one can assume, for a probable deal with an interested party," he said.
Marat Gabitov of Unicredit Aton also said the news of the buyback was good for minority shareholders.
"This is very good for minority shareholders. The premium is 26%. We must take into account that this buyback is proportional. In addition, one must understand that RUSAL, Interros and, possibly someone else we don't know about, will not sell their shares. That is, the real free float is now 45%, but 35-40%. Since they won't sell their shares, minority shareholders will have far more opportunity to sell them," Gabitov said.
RUSAL, attempting to gain support at an upcoming shareholder meeting, said Norilsk Nickel should pay out all extra cash in the form of dividends, but Interros trumped the aluminum giant with this buyback proposal, Gabitov said.
Mikhail Seleznev of Deutsche Bank agreed, saying that minority shareholders "are very happy that Norilsk Nickel is buying their shares at $254, the premium is more than 25%."
Norilsk Nickel's statement, which said the bought shares would be put on the company's books, immediately eliminated concerns that the treasury stock might have voting rights.
"The shares are being bought to Norilsk Nickel's balance sheet, they will become treasury stock. They are being bought by Norilsk itself, not a subsidiary. The shares will not vote, and in a year Norilsk Nickel will have to cancel them. Under the law on joint-stock companies, these treasuries do not vote," Smolin said.
Seleznev also said the shares could not vote. "Management will not vote with these shares. Under the law on joint-stock companies, shares on a company's balance sheet do not vote and do not receive dividends," he said.
But Gabitov did not rule out that the treasury stock could work along the same lines as at Polyus Gold.
"Everything depends on the structure. It is possible that in the end these shares will be managed by the board of directors, or they will be controlled by the general director," Gabitov said.
The shareholder dispute at Norilsk Nickel intensified after RUSAL acquired a 25% stake in the miner in the spring. Last week RUSAL announced plans to call an extraordinary general meeting to elect a new board of directors at Norilsk Nickel and expand it to 13 directors from the current nine, as well as elect new independent directors.
The positions of the independent directors and their votes play a decisive role, as confirmed by the last two board votes to appoint a new general director at Norilsk Nickel, when the board confirmed Interros' candidate despite opposition from RUSAL.
Norilsk Nickel's shares closed at 4,855 rubles on the MICEX exchange on August 22.
Shares in MMC Norilsk Nickel rose 5% on August 25 morning trading following news the company would buy back shares.
Norilsk Nickel had settled to 5,103 rubles per share (up 5.1%) as of 11:19 a.m. on August 25 morning after opening at 5,177 rubles, 6.6% above the close on August 22.
Fitch
Fitch Ratings said MMC Norilsk Nickel's to buy back 4.17% of its shares would not affect the company's Long-term Issuer Default Rating (IDR) and senior unsecured rating of 'BBB-' and its Short-term IDR of 'F3'.
The Outlook for the Long-term IDR remains Stable, the agency said.
Norilsk Nickel will purchase up to 7,947,000 of its own shares (about 4% of the authorized capital of Norilsk Nickel) at a price of about USD 254 per share. Management has announced that the goal of the buy-back is to support the company's securities prices which have recently declined.
Fitch notes that in the last three years Norilsk Nickel has generated very strong free cash flows and maintained very conservative credit metrics, even compared to its Russian peer group. Fitch does not interpret the current announcement as signaling a move away from Norilsk Nickel's conservative financial profile but rather as utilization of surplus cash gained from record prices for nickel and copper.
Fitch expects that over the cycle the company will maintain its net leverage at 0.5x-0.8x or below. Fitch notes that in the last three years Norilsk Nickel distributed more than USD 8 bln of cash in the form of stock buy-backs or buy-outs, and in the form of dividends without deteriorating the company's financial profile.
Norilsk Nickel is the world's largest producer of nickel (18% market share) and palladium (50%), as well as a leading producer of copper (10th largest) and platinum (4th largest), Fitch said. In FEY the company generated revenues of USD 17.1 bln. (A 44% increase in comparison to FYE06), EBITDAR of USD 10.2 bln. (a 34% increase in comparison to FYE06). Company had an adjusted net leverage (adjusted net debt/EBITDAR) of 0.8x at FYE07.
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Decision to stabilize Ukrainian steel industry expected
KYIV. (Interfax) - A decision on measures to stabilize the Ukrainian steel industry, which is reeling from the effects of a downturn on the markets and demand for steel, is expected on August 28.
A meeting of steel industry bosses chaired by Ukrainian Prime Minister Yulia Tymoshenko, convened on Wednesday to thrash out measures to ease the potential crisis, will continue into Thursday, Volodomyr Boyko, general director of Ilich Iron & Steel Works, the country's third biggest steel mill, told Interfax.
Working parties were set up on Wednesday to gather together proposals in a bid to reach final decisions today.
Boyko said he warned about an impending crisis in the sector more than a month ago, but nothing had been done.
Volodomyr Novytsky, the industrial policy minister, told Interfax that Tymoshenko had given ministries and agencies until the middle of today to review the proposals on how to get the industry back on track and to draft decisions on implementing them. He said Tymoshenko had agreed to meet the industry's representatives Thursday afternoon.
Novytsky said the proposals include elements of price regulation for some goods and services, including iron ore.
"The mining industry bosses will be there too, and the issue will be looked at," Novytsky said.
The Ilich plant's Boyko said on Wednesday that his enterprise was "on the brink of stoppage" due to problems with coke supplies and the declining markets. "But our furnaces have to be de-commissioned gradually, not suddenly. We're worried they might explode," he said.
The Dzerzhinsky, Alchevsk and Zaporizhstal steel mills are all in the same boat, Boyko said.
Metinvest, which controls the Azovstal mill, among others, buys most of its coke in Russia, and has only been getting 40%-50% of what it ordered from there in the last couple of months, Volodomyr Husak, director of Metinvest's coal and coke division, told Interfax on Wednesday. "We'd have had big problems if it hadn't been for what we think will be...
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