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. Last Updated: 07/27/2016

MDM Takes Control of VostSibUgol

MDM Group announced Monday that it has obtained a controlling stake in VostSibUgol after the Property Fund sold off a 41.5 percent stake in the nation's third largest coal producer.

"MDM Group has become a strategic investor and main shareholder in VostSibUgol," MDM Group said in a statement.

But the holding, whose portfolio includes stakes in metals companies as well as in the coal firm ChitaUgol, was elusive about the size of the stake in the Irkutsk-based VostSibUgol and how much it had paid for the shares.

MDM made its statement shortly before the Property Fund sold a 41.5 percent stake for 933 million rubles ($32.7 million) to several bidders. Siburka, an investment vehicle seen as close to MDM, won 38 percent of that stake.

Along with an estimated 40 percent acquired earlier, MDM Group is thought to now control at least 78 percent of VostSibUgol.

Before the winners of Monday's tender were even announced, MDM said it had appointed board member Oleg Misevra as acting general director of the company.

Misevra, in turn, rushed to cut a deal with Irkutsk Governor Boris Govorin to ensure a smooth takeover. He suggested the company sign a pact with the regional administration aimed at "mutually advantageous cooperation" between the two sides, according to MDM.

Misevra also mapped out a revamp proposal under which VostSibUgol would boost exports to 25 percent of output, restructure its debts of 5.5 billion rubles ($200 million) and invest 1 billion rubles to upgrade its assets in 2001.

VostSibUgol has an annual extraction of 15.6 million tons and sold roughly $65 million of coal in 2000.

With its ownership of ChitaUgol and VostSibUgol, MDM could dig up healthy profits down the road, said Anatoly Skryl, head of information center RosInformUgol.

"Once gas prices are lifted, coal companies will become more competitive," Skryl said.

Last year, the government approved a new power strategy calling for coal's share in total fuel consumption to grow to at least 20 percent from a low of 11.5 percent.

Demand for coal is expected to shoot up if and when domestic gas prices, now at about 15 percent of world prices, are liberalized.

MDM's announcement of its growing coal portfolio comes as a raft of fresh coal sales loom, thanks to a World Bank-sponsored privatization of the industry.

Under terms of a $800 million Second Coal Sector Adjustment Loan, or (Coal SECAL II), approved by the World Bank in December 1997, the government pledged to put in private hands 45 percent of all coal extraction and announce sales of another 10 percent of its coal assets.

The sale of the VostSibUgol stake was part of that second stage of the privatization.