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. Last Updated: 07/27/2016

Pipe Plant’s Stocks Are Hot Property

Seeing unknown brokers buying out its shares in its Azov Sea hometown and through the Russian Trading System, Taganrog Pipe Plant is mulling an additional share issuance, citing high demand for its stock in its recent public placement.

The plant’s stock shot up 730 percent in the past month, but brokers fear the bonanza could abruptly come to an end after the fight for control over the enterprise is over.

"The board on Tuesday told the director to draft a business plan that allows for additional share issuance," said Valery Puchkaryov, deputy head of the investor-relations department at the plant.

Several recent news reports suggested most of the buying activity was carried out by trading company Alfa-Eko, MDM Bank, and Ukrainian investment group Interpipe, which acted through its Moscow outlet. It is not clear in whose interests the buyers were acting.

A source in the Alfa Group holding who declined to be named admitted that its subsidiary Alfa-Eko was involved in buying out the shares in secondary market. MDM Bank refused a comment and Interpipe director Vadim Anikeyev denied buying Taganrog shares.

"Fundamentally, it is not better than the rest of the pack so the share price will inevitably drop," says Svetlana Smirnova, metals analyst with Renaissance Capital investment bank.

Taganrog Pipe Plant closed the subscription for a fourth share issuance on Aug.15, floating 150 million shares in addition to the existing 508.7 million.

The issuance has not yet been registered by the Federal Securities Commission, which has told the plant it has yet to meet some regulatory requirements. Regardless, the plant is moving full-steam ahead with a new — its fifth — placement worth 300 million shares, that will be tentatively sold off at 4 rubles each.

Until recently, a 35 percent stake in the pipe works belonged to the Shelf group of companies close to the management team; 16 percent was in the hands of Bank Petrovsky, whose Taganrog representative, Vladimir Verba, is also chairman of the plant’s board; 24 percent was held the employees; and the remaining 25 percent was owned by minority shareholders represented by private companies.

It is not clear whether Bank Petrovsky or some other major shareholder sold its stake. Officials at Petrovsky’s headquarters in St.Petersburg refused to comment Thursday.

The plant’s stock was laying idle since March until Aug. 4 this year, when the first transaction took place at a price of 2.85 cents a share. A week later, the stock shot up to 8 cents and by the end of the month it was traded at 9.5 cents, a hefty 730 percent increase to a bid price of 1.5 cents at the start of August.

"The stock will tumble after the fight for ownership is over," said Alexander Agibalov, metals analyst with Aton brokerage. "The buyer of the new shares will virtually obtain control over the company."

In part, market activity is high because those investors who bought Taganrog’s shares back in pre-crisis 1997, when most of the trades were conducted close to 20 cents and the year high was over 30 cents a share, are now dumping the stock, seeing the recent price hike as a sell opportunity, one analyst said.

"Fundamentally, it is not better than the rest of the pack so the share price will inevitably drop," said Svetlana Smirnova, metals analyst with Renaissance Capital investment bank.

Together with Volzhsky Pipe Plant, Taganrog is one of the two pipe plants located in the European part of Russia close to a site developed by the Caspian Pipeline Consortium. The pipeline is intended to take oil from Kazakhstan’s Tengiz oil field to the Black Sea port of Novorossiisk.

MDM Bank acquired a controlling stake in Volzhsky Tube Works at the start of the year.