Bloomberg News

Mechel to Sell New Preferred Shares to Fund Expansion

June 24, 2008

OAO Mechel (MTLR), the Russian coal and steel producer controlled by billionaire Igor Zyuzin, will sell new preferred shares to help fund a planned $5.2 billion upgrade and expansion of its production through 2012.

Morgan Stanley and Moscow-based Renaissance Capital will arrange the sale of as many as 55 million shares, or about 12 percent of the company, in Moscow and Frankfurt, Mechel said today in statement. It didn't give the price of the offering.

Mechel may raise between $2 billion and $2.5 billion, with the sale attracting both equity and debt investors, said Olga Okuneva, an analyst at Deutsche Bank AG in Moscow. ``Prefs are a quasi-debt instrument, so the potential investor base isn't going to be limited by equity investors,'' she said.

The Moscow-based company already plans to sell shares in a mining unit this year after spending $2.3 billion in October for the rights to Russia's biggest untapped coking coal deposit.

Mechel will spend $3 billion on mining and $2.2 billion on steel output through 2012, it said on June 20. The total is almost double the figure of $2.7 billion that the company had previously planned to invest in its operations.

The preferred shares will pay an annual dividend of 20 percent of Mechel's group net income divided by 138.8 million, the number of outstanding authorized preferred shares.

The offering will be listed on the RTS and Micex stock exchanges and on the Frankfurt Stock Exchange as depositary receipts. Moscow-based KIT Finance will be co-lead manager and co-underwriter for the sale, Mechel said.

To contact the reporter on this story: Yuriy Humber in Moscow at yhumber@bloomberg.net Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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