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. Last Updated: 07/27/2016

State Holds First Successful Crisis-Time Sell-Off




In the first privatization sale since the financial crisis began, a Cyprus-based offshore company has bought a stake in a Urals metals mill for twice the market price.


Skironas Investment Ltd. on Friday paid $16 million to win a state auction for a 15 percent stake in the debt-laden Mechel mill.


The bid for 474,295 shares in the Chelyabinsk-based mill was just $50,000 above the starting price set by the Chelyabinsk Property Fund, which oversees privatization auctions in the Ural Mountains region east of Moscow.


The winning bid is raising eyebrows because it values each share at $33, or more than twice the current market price of $12 to $15 per share. Analysts said the mill's majority shareholder had probably leveraged the purchase to strengthen its grip over the plant, the seventh largest in Russia.


But the shareholder, Glencore International, a Swiss wholesale metals trader that owns some 70 percent of Mechel through various companies, said Monday that it was not affiliated with Skironas.


Alexei Ivanushkin, Glencore director for ferrous alloys and metals, said he had never heard of Skironas and metals analysts said they were not familiar with the company.


Skironas officials could not be reached for comment.


Analysts said they were baffled over why an investor would pay such a steep price for the stake. Mechel is burdened with debts and plagued with dropping production levels. Tax and pension debts total $70 million and output during the first quarter of 1998 fell 15 percent to 20 percent compared with the same period last year, according to the State Property Fund's official Reforma bulletin. The mill produced 2.16 million tons of steel in 1997, or 7 percent of the nation's total in 1997, according to Skate information agency. Output of rolled metals reached 1.62 million tons or 6 percent, the agency said.


Officials at Rabikom, the investment group that managed the 15 percent stake for the state since 1995, said the sale had come as a surprise. "I can't say why anyone would want to buy that stake," said Larisa Abezgauz, the deputy director.


She said the company was fortunate to sell the shares. Rabikom got the shares for $12 million in 1995 under the government's loans-for-shares program.


"We did not earn anything by having this stake in trust for three years," Abezgauz said. "If the stake was not sold off, it would have had to go back to the state and we might have never got back our money."


Ivanushkin, however, said Glencore believes the mill has good prospects. Michel is about to start a $400 million, seven-year investment program that will enable it to produce high-quality steel and other rolled metals, he said.


Funding for the project will come from foreign bank loans and be backed by steel output, he said.


Other privatization auctions have failed since the economic crisis struck in August. Among the larger disappointments for the state were the sell-offs of a 25 percent stake in telecommunications giant Svyazinvest and a 5 percent stake in gas monopoly Gazprom. The state hopes to sell a 2.5 percent stake in Gazprom on Dec. 18.