) declared the closer of the deal on disposal of 100% of
Toplofikatsia Rousse EAD (TPP Rousse, Bulgaria) shares. This
marks the second deal for disposal of the company's non-core
assets that completed in 2013.
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According to the Dec 2012 sale and purchase agreement, 100% of
Toplofikatsia Rousse EAD's shares were sold to a privately-held
Bulgarian power company Toplofikatsia Pleven. The disposal value
was roughly €29 million ($37.3 million) considering the asset's
equity value. The deal also states that TPP Rousse will repay its
debt to Mechel Carbon for coal deliveries that amounted to $18.8
TPP Rousse, which had nearly 300 employees as of Dec 31, 2012,
generated 364 GWh of electricity and 235 Gcal of heat power in
2012 and earned revenues of 56.8 million lev.
The financial advisors for the transaction were VTB Capital and
UniCredit Bank and CMC acted as the legal advisor to Mechel. This
deal will enable Mechel to focus on consolidating its leading
metallurgical coal producer's position, strengthening its
position in steel products for construction and increasing its
share value for high value-added steel products. The
restructuring program of the Mechel's assets, which was
previously approved by its Board, led to this transaction.
Mechel posted a loss in the first quarter of 2013, hurt by the
sale of its Romanian steelmaking assets. Revenues suffered a
double-digit drop with declines across the board. Sustained
weakness was seen in the core mining segment. Mechel also
announced its decision to buy back $100 million of ADRs
(representing its common shares) reflected its confidence that
the fundamental value of its share is higher and meets the
interests of its shareholders.
Mechel's high debt and substantial interest burden are matters of
concern. Mechel is also faced with weak demand from Europe.
However, we are encouraged by the incremental opportunities
stemming from the Elga mine, which is expected to reinforce the
company's position as a metallurgical coal producer through
Mechel retains a Zacks Rank #4 (Sell).
Other companies in the steel industry with favorable Zacks Rank
Kobe Steel Ltd.
Shiloh Industries Inc.
Nippon Steel & Sumitomo Metal Corporation
). All of them hold a Zacks Rank #1 (Strong Buy).