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Mechel Shareholders Approve Guarantee Issue - Analyst Blog

By: Zacks.com
Posted: 10/17/2013 1:06:00 PM
Referenced Stocks: GGB;MTL;SHLO;SID

Russian miner Mechel OAO 's ( MTL ) extraordinary general shareholders meeting has approved the issue of guarantee for performance of Mechel Group sellers' obligations to the Turkey-based ferroalloys company Yildirim Group, under the sale-purchase agreement.

Mechel, on Aug 1, entered into an agreement to sell its ferroalloys assets to Yildirim Group for $425 million. The issuance of the guarantee is a condition for the closure of the deal. The deal is expected to close by the end of 2013.

The sale-purchase agreement states that Mechel will dispose Voskhod Mining Plant in Khromtau, Kazakhstan, and Tikhvin Ferroalloy Plant in Tikhvin, Leningrad Region, Russia to Yildirim Group. The Tikhvin Plant produces up to 120,000 tons per annum of high-carbon ferrochrome that is used to produce stainless steel. The Voskhod Plant is a modern chrome ore mine that produces chrome ore concentrate.

Under the sale-purchase agreement, Mechel Group's companies act as formal sellers and an SPV within Yildirim Group acts as a buyer. Mechel plans to utilize the proceeds from the deal to deleverage and continue to finance its priority development projects. The divestiture of the assets is a strategic move by Mechel, in sync with the ongoing restructuring assets program that was approved by its board earlier.

Yildirim Group will pay the total amount for the transaction to Mechel immediately after the closure of the deal. However, the deal's closure depends on all necessary approval required from Kazakh and Russian regulatory authorities and from corporate management agencies of both the companies.

Societe Generale Corporate and Investment Bank, ING Bank and Dechert LLP are the advisors to Mechel for this transaction.

The acquisition will boost Yildirim Group's production capacity to a world-class level of 2.5 million tons per annum. Yildirim Group is the owner of production plants at Eti Krom in Turkey and Vargon Alloys AB in Sweden. With the addition of Mechel's ferroalloys assets, Yildirim Group will place itself among the prominent players in high-carbon, high-quality ferrochrome production.

Mechel is a leading domestic steel and coal producer with a strong position in key businesses, including production of specialty steel and alloys. The company has the largest coal reserve base in Russia and is mainly focusing on growth and cost-cutting measures.

Mechel retains a Zacks Rank #4 (Sell).

Other companies in the steel industry with favorable Zacks Rank are Companhia Siderurgica Nacional ( SID ), Shiloh Industries Inc. ( SHLO ) and Gerdau S.A. ( GGB ). While Companhia Siderurgica and Shiloh hold a Zacks Rank #1 (Strong Buy), Gerdau retains a Zacks Rank #2 (Buy).



GERDAU SA ADR (GGB): Free Stock Analysis Report

MECHEL OAO ADS (MTL): Free Stock Analysis Report

SHILOH INDS INC (SHLO): Get Free Report

CIA SIDERUR-ADR (SID): Free Stock Analysis Report

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