Mechel

Mechel
Mechel OAO
Мечел
Type Public (RTS:MTLR
NYSE: MTL, MTLPR)
Industry Mining & Steel
Founded (2003)
Headquarters Moscow, Russia
Key people Igor Zyuzin, General Director,
Products Iron ore, Steel, Coal, Nickel, Hardware
Revenue increase US$ 9.7 Billion (2010)
Net income increase US$ 657.7 Million (2010)
Employees 83.070
Website www.mechel.com

Mechel (Russian: ОАО «Мечел») (RTS:MTLR / NYSE: MTL, MTLPR) is one of Russia’s leading mining and metallurgical companies, producing coal, iron ore, nickel steel, rolled steel products, hardware, heat and electric power. Headquartered in Moscow, the company operates facilities in Russia, Romania, Lithuania, Kazakhstan, Bulgaria, and the United States.

The company was incorporated on March 19, 2003. Its American Depositary Shares and ADS preferred stock are traded on the New York Stock Exchange. As of May 24, 2010, Mechel has a stable corporate family rating of "B1" as well as a "B1" probability of default rating, both assigned by Moody's.[1]


Contents

Operations

Mining products

Russia

United States

Steel products

Russia

Romania

Lithuania

Ferroalloys products

Russia

Kazakhstan

Power

Russia

Bulgaria

  • Toplofikatsia Ruse, Ruse, Bulgaria

Various

Sales

  • Mechel Trading AG
  • Mechel Service Global
  • Mechel Service
  • HBL Holding
  • Mechel Trading House

Transportation

  • Mecheltrans

Additionally, Mechel operates three port facilities:

2008 controversy

Mechel's stock plunged by almost 38 percent on July 24, 2008 after Russia's Prime Minister Vladimir Putin criticized its CEO Igor Zyuzin, and accused the company of selling resources to Russia at higher prices than those charged to foreign countries. The comments, which raised fears of another attack similar to that made on Yukos in 2004, contrasted sharply with previous efforts by President Dmitry Medvedev to improve Russia's reputation as an investor-friendly country.[2]

On the following day, July 25, the company issued a contrite statement promising full cooperation with federal authorities,[2] while share values rebounded by nearly 15 percent. Presidential aide Arkady Dvorkovich also sought to restore calm on July 28, declaring that all parties would "act in a civilized way," and confirming that Mechel was cooperating with antitrust authorities.[3] Just hours later, however, Putin announced that Mechel had been avoiding taxes, by using foreign subsidiaries to sell its products internationally. His renewed attack caused share prices to tumble once more—this time by almost 33 percent.[4]

An explosion at a Mechel coal mine on July 29 resulted in a further drop in share value of over 12 percent. Responding to investor concerns over the risk of political intervention, and to continuing apprehension that the company might face a fate similar to that of Yukos, First Deputy Prime Minister Igor Shuvalov remarked that this was "a most unlikely scenario." He went on to suggest that "The most likely scenario is that the company will co-operate with the state authorities. We are intent on there not being any more stress."[5][6]

Putin's attacks drew criticism from senior Russian leaders. Igor Yurgens, the head of Russia's Institute of Contemporary Development, said "It is not prudent to make your own stock market fall," adding that "There are 150 ways of deciding such problems without resorting to such comments." In an unprecedented move on July 31, President Medvedev called on authorities to stop intimidating business. "Our law enforcement agencies and government authorities should stop causing nightmares for business," he told a televised government meeting.[7]

The reactions went some way to soothing fears of a possible attempt to seize control of the company, and helped to stabilize share prices—albeit at substantially lower levels than in previous months.[7][8][9]

In the wake of these events, Mechel announced on August 8 that a preferred share issue, previously planned for placement on August 11, was to be postponed indefinitely.[10]

Late 2008 through 2009: recession, reorganization, and consolidation

Following the tax and pricing controversy, Mechel was further harmed by fallout from the 2008 South Ossetia War, which caused a temporary foreign capital withdraw, as well as the Economic crisis of 2008, which caused decreased sales and more stringent loan requirements. Responding to these issues, Mechel took the opportunity to consolidate/reorganize operations and renegotiate the terms of its debt.

Though still expanding, albeit at a slower pace due to the recession, Mechel found it necessary to use this opportunity as a means to consolidate its position in the global market as well as reorganize its business model to meet the needs of customers and reflect the company's many locations.

  • October 22, 2008: Mechel organizes its Romanian companies into the East-European Steel Division, based at the Targoviste plant.[11]
  • October 30, 2008: Including the recently acquired ferroalloy assets of Oriel Resources with its current ferroalloy assets, Mechel expands and consolidates its ferroalloy business.[12]
  • January 13, 2009: Gazprombank arranges financing in the amount of up to $255 million for a universal rail and structural steel mill at Mechel's Chelyabinsk Metallurgical Plant. Designed to meet the needs of the Russian Railways contract that was signed in November, 2008, the $500 million+ mill (total cost) will produce over 1 million tons of rail and structural shapes annually. The mill is expected to be commissioned at the end of 2010.[13]
  • April 22-May 8, 2009: Mechel signs and closes an agreement to acquire Bluestone Coal and select affiliates of West Virginia for a price of $436 million and 83.3 million preferred shares, as well as assuming Bluestone's $136 million net debt. Bluestone Coal, which was a privately-held business engaging in the mining, processing, and sale of hard coking coal, sold 2.8 million tons of hard coking coal, generated $327 million in sales, and had an EBITDA of roughly $94 million in 2008.[14][15]

As the financial crisis initially began having an effect on global businesses, the overwhelming majority of the company's debt was current/short-term. To enable the company to continue operations and resource development, Mechel had to find a way to restructure a larger portion of its debt to be payable in the long-term: this was done through several financing deals.

  • December 4, 2008: VTB Bank provides a 15 billion ruble (approximately $560 million) credit line to be used for the operations of Yakutugol, Southern Kuzbass Coal Company, and Chelyabinsk Metallurgical Plant, which are all subsidiaries of Mechel. Along with the credit line, VTB Bank agrees to become a primary financier of Mechel's current investment activities as well as servicer of financial operations. Additionally, Mechel (per the agreement) is expected to consult VTB Bank regarding development of accounts (foreign and domestic) and the implementation of modern financial management technologies.[16]
  • February 9, 2009: Gazprombank extends $1 billion in credit to Mechel subsidiary companies. The credit has a term of 3 years and will mainly be for the purpose of repaying short-term debt.[17]
  • July 13–20, 2009: Mechel successfully refinances $2.6 billion in short-term credit that was used to acquire Yakutugol, Elgaugol, and Oriel Resources. Per the agreement, Mechel refinanced $1.6 billion of the $2 billion Yakutugol/Elgaugol acquisition credit, directly repaying the outstanding $400 million with company funds, and $1 billion of the $1.5 billion Oriel Resources acquisition credit, repaying the outstanding $500 million from the February, 2009 Gazprombank credit. Both agreements are set to fully mature in December, 2012; they are set at a rate of LIBOR rate +6% and LIBOR rate +7%, respectively.[18][19]
  • December 2, 2009: VTB Bank and Mechel agree to prolong the previous year's 15 billion ruble (approximately $560 million) credit/loan for another 3 years. the prolongation agreement calls for interest payment during the initial 2.5 years, followed by repayment of the principal. According to the corresponding press release, "this agreement is based on strong and long-term relations between Mechel and VTB Bank and mutual interest of the parties in future complex cooperation development." [20]

References

  1. ^ Videman, Ekaterina (May 24, 2010). "Mechel Announces Obtaining International Credit Rating". GlobeNewswire. http://www.globenewswire.com/news.html?d=192602. Retrieved 2010-05-25. 
  2. ^ a b Kramer, Andrew E (July 26, 2008). "Putin’s Criticism Puts a $6 Billion Hole in a Company". The New York Times. http://www.nytimes.com/2008/07/26/business/worldbusiness/26steel.html. Retrieved 2008-08-10. 
  3. ^ Stewart, Catrina (July 28, 2008). "Putin blasts steel firm Mechel for tax evasion". BusinessWeek. http://www.businessweek.com/ap/financialnews/D9273QLO0.htm. Retrieved 2008-08-10. 
  4. ^ Lesova, Polya (July 28, 2008). "Fresh criticism by Putin sends Mechel shares tumbling again". MarketWatch. http://www.marketwatch.com/news/story/fresh-criticism-putin-sends-mechel/story.aspx?guid=%7B8C4B2044-12EA-4F2A-A20B-5E640B836CA2%7D&dist=msr_9. Retrieved 2008-08-10. 
  5. ^ Shuster, Simon (July 29, 2008). "Methane blast at Mechel coal mine injures 17". Reuters. http://uk.reuters.com/article/latestCrisis/idUKL912881420080729. Retrieved 2008-08-10. 
  6. ^ Paxton, Robin (July 29, 2008). "Russia's Mechel extends losses after coal mine blast". Reuters. http://uk.reuters.com/article/oilRpt/idUKL927159220080729?pageNumber=1. Retrieved 2008-08-10. 
  7. ^ a b Meyer, Henry (July 31, 2008). "Medvedev Tells Authorities to Stop Scaring Business". Bloomberg. http://www.bloomberg.com/apps/news?pid=20601087&sid=a4xMQvMqlHz4&refer=home. Retrieved 2008-08-10. 
  8. ^ "Moscow shares gain late afternoon as oil producers rise, Mechel recovers". Forbes (Thomson Financial). August 7, 2008. http://www.forbes.com/afxnewslimited/feeds/afx/2008/08/07/afx5299921.html. Retrieved 2008-08-10. 
  9. ^ "Chart: Mechel (MTL) share values (ADR)". Google Finance. New York Stock Exchange. July 22–August 11, 2008. http://finance.google.com/finance?chdnp=1&chdd=0&chds=0&chdv=0&chvs=maximized&chdeh=0&chdet=1218216960000&chddm=5070&q=NYSE:MTL. Retrieved 2008-08-10. 
  10. ^ Paxton, Robin; Ireland, Louise (ed.) (August 8, 2008). "Russia's Mechel postpones share issue indefinitely". Reuters. http://www.reuters.com/article/newIssuesNews/idUSL849779420080808. Retrieved 2008-08-10. 
  11. ^ Zhitomirsky, Ilya (October 27, 2008). "Mechel Establishes East-European Steel Division". Mechel. http://www.mechel.com/news/article.wbp?article-id=B5D595F4-0D5E-4953-8262-3E4A7377B006. Retrieved 2010-05-15. 
  12. ^ Zhitomirsky, Ilya (October 30, 2008). "Mechel Consolidates Its Ferroalloy Assets". Mechel. http://www.mechel.com/news/article.wbp?article-id=54118CC0-ABE4-490A-B89A-9BF91A7EC653. Retrieved 2010-05-15. 
  13. ^ Zhitomirsky, Ilya (January 13, 2009). "Mechel Enters into an Agreement with Gazprombank OAO to Arrange Financing of Universal Rolling Mill Installation Project at its Chelyabinsk Metallurgical Plant Subsidiary". Mechel. http://www.mechel.com/news/article.wbp?article-id=243E4029-9B46-4032-8AEF-94AF0FEFEB26. Retrieved 2010-05-15. 
  14. ^ Zhitomirsky, Ilya (April 22, 2009). "Mechel Announces Definitive Agreement to Acquire Coking Coal Assets of Bluestone Coal Corp.". Mechel. http://www.mechel.com/news/article.wbp?article-id=C66E4582-3E40-4864-A994-24597A8A2314. Retrieved 2010-05-15. 
  15. ^ Zhitomirsky, Ilya (May 8, 2009). "Mechel Announces Closing Of a Deal to AcquireCoking Coal Assets of Bluestone Coal Corp.". Mechel. http://www.mechel.com/news/article.wbp?article-id=82722A46-FC05-4B74-82AD-8FAC699A89D6. Retrieved 2010-05-15. 
  16. ^ Zhitomirsky, Ilya (December 4, 2008). "Mechel Obtains Credit Lines From VTB Bank". Mechel. http://www.mechel.com/news/article.wbp?article-id=FA9A5F16-36B1-4FBF-BBDD-CFF3FE199290. Retrieved 2010-05-10. 
  17. ^ Zhitomirsky, Ilya (February 9, 2009). "Mechel Announces Opening of Credit Facilities In The Amount of $1 Billion by Gazprombank". Mechel. http://www.mechel.com/news/article.wbp?article-id=A3D6DE97-A063-4732-8197-9C221FC47671. Retrieved 2010-05-02. 
  18. ^ Zhitomirsky, Ilya (July 13, 2009). "Mechel Announces Refinancing of Its Short-Term Credit Facilities". Mechel. http://www.mechel.com/news/article.wbp?article-id=A5A05E11-A472-4B42-9A52-10087ACFD55A. Retrieved 2010-05-10. 
  19. ^ Zhitomirsky, Ilya (July 20, 2009). "Mechel Announces Closing the Deal for Refinancing of Its Short-Term Credit Facilities". Mechel. http://www.mechel.com/news/article.wbp?article-id=C7D05FCD-5F44-409B-93C3-0E0CD9B7855F. Retrieved 2010-05-10. 
  20. ^ Zhitomirsky, Ilya (December 2, 2009). "Mechel Announces Three Year Prolongation of VTB Bank Loan". Mechel. http://www.mechel.com/news/article.wbp?article-id=E69D7C00-3542-422D-A536-B6C7B5E35834. Retrieved 2010-05-10. 

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