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. Last Updated: 07/27/2016

Steel Giant to Join Firms Listing in London

LONDON — Russia's largest steel producer, Yevraz Group, said on Friday it would list in London by early June, with a source close to the deal saying a placement of about 10 percent of its stock could raise over $500 million.

Yevraz ranks among the world's top-15 steel makers and joins a wave of Russian firms listing in London.

Yevraz, controlled by CEO Alexander Abramov, is a vertically integrated operation which produced 13.7 million tons of steel in 2004 and says its self-sufficiency in iron ore and coking coal gives it cost advantages over its rivals.

Buoyed by booming world demand, Yevraz nearly trebled sales in 2004 to $5.9 billion from $2.1 billion a year earlier.

Earnings before interest, tax, depreciation and amortization, or EBITDA, were $2.1 billion in 2004, up from around $500 million, while net profit quintupled to more than $1 billion, senior executive vice president Alexander Frolov said.

Audited results will be published before the IPO.

The offering will be of new shares, with management keeping its holdings.

"Existing shareholders will stay with the company because they believe in its growth and in the existence of a super opportunity," Frolov said in a telephone interview.

On the choice of listing venue, he said: "[London is] the home market for the international steel and mining community. It is an investor base that is familiar with Russia, familiar with the sector and with emerging markets."

Based on the market valuation of rival Russian steel firm Mechel, which is listed in New York and trades at about three times historic EBITDA per share, Yevraz could be worth as much as $6 billion, the source close to the deal said.

"It's quite a logical move. If not now — then when?" said Kirill Chuiko, metals analyst at UralSib, adding that the IPO should be well received by investors.

"This will be followed by consolidation of their assets, and at the end of the day we are going to get the biggest vertically integrated public [steel] company in Russia."

Yevraz plans to use the funds raised to acquire mining assets in Russia and Ukraine, as well as downstream operations outside Russia, with the prime target Czech steelmaker Vitkovice Steel, set to be privatized for up to $300 million.

"We are just contemplating our due diligence now to make sure that we come up with a decent and winning bid," said chief financial officer Pavel Tatyanin.

Frolov forecast no material change in steel output this year, and said Yevraz also wanted to invest in its product mix to offer more value-added flat products.

Yevraz is creating a Luxembourg-registered firm, Evraz Group S.A., as its listing vehicle, aiming to simplify its holding structure, buy out minorities and reduce debt at its operating units.

Evraz Group will take over Cyprus holding firm Mastercroft, and thus control over its three main steel plants: Nizhny Tagil, Zapadno-Sibirsky and Novokuznetsk. It would also own the Nakhodka commercial port in the Far East, as well as the group's extensive mining and distribution interests.

Brokerage Aton said the Yevraz float was good news for minority shareholders in Nizhny Tagil, Zapadno-Sibirsky and mining units KGOK and GKOK, all of which have modest free float.

"By going public, Yevraz will be much more accountable to all its constituencies," said Aton analyst Timothy McCutcheon, who valued Yevraz at the higher end of a range of $5 billion to $7 billion.

Yevraz said it had no plans to raise further funding on eurobond markets. It has two bonds outstanding, maturing in 2006 and in 2009, worth $475 million.

Morgan Stanley is acting as global coordinator for the stock offering, with CSFB and Renaissance Capital joint lead managers and joint bookrunners.