OAO Mechel (MTL:US) is ready to drop proposals for a London or New York initial public offering for its mining unit should the company raise enough money from a plan to boost returns, including possible asset sales, to finance projects.
“We don’t expect a Mechel-Mining IPO this year due to market volatility,” Stanislav Ploschenko, chief financial officer of Russia’s largest producer of steelmaking coal, said today in an interview in Moscow. “We also may not sell the stake at all should our new strategy be successful and we are able to fund the mining division’s projects without an IPO.”
Mechel’s board yesterday approved a plan to cut the debt of Russia’s most leveraged company, partly by selling assets. The company’s net debt surged 33 percent last year to $9.3 billion, while its proposal to sell $2 billion of Mechel-Mining shares in London was postponed in September because of weak markets.
Mechel (MTLR), which has the world’s second-largest coking coal reserves, will focus on mining, steelmaking -- particularly for construction -- and products such as specialty and stainless steel where it’s the top Russian producer, Ploschenko said.
Other assets will be audited for their profitability and investment needs within two to three months, with a possibility “certain divestment could happen this year,” he said. It’s too early to say how much money might be raised, the CFO said.
“It doesn’t mean we will necessarily sell entire business divisions like the ferroalloys business or our power assets,” Ploschenko said. The ferroalloys division supplies steel units with ferrosilicon, and stainless steel operations with chrome and nickel, while secure power is also important, he said.
Asked whether Mechel planned to offload its Romanian steel plants, Ploschenko said that while their low profitability makes them “more obvious candidates,” he couldn’t confirm a sale.
Power operations including Bulgaria’s Toplofikatsia Rousse and the ferroalloys business of Mechel’s Oriel Resources unit are the most obvious candidates to sell, said Dmitry Smolin, a Uralsib Capital analyst. While steel plants in Romania may be considered, it would be hard to find a buyer, he said.
Mechel doesn’t plan to sell its trading operations as their distribution network allows the company to respond more quickly to the market and reduce volatility in sales, Ploschenko said. Concerns the business requires funding for working capital are exaggerated. “We can also return cash when needed by selling stockpiles, which is exactly what we’re doing now,” he said.
Should the company decide to continue with the IPO plans, “the two obvious candidates for a listing venue would be either London or New York,” Ploschenko said.
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