Evraz buying management out of Raspadskaya coal co, to up stake to 82%
MOSCOW. Oct 4 (Interfax) - Evraz plc is buying 50% of the shares in Corber Enterprises Limited, the core shareholder in coking coal producer Raspadskaya , Evraz said in a statement.
Corber is owned on an equal footing by Evraz and Raspadskaya's management
Raspadskaya's shares rose 5.9% to 86.19 rubles by 10:30 a.m. on the MICEX exchange.
Evraz said it had had agreed the terms of the acquisition of an indirect controlling interest in Raspadskaya and its subsidiaries.
"Evraz has agreed to purchase a further 50% interest in Corber Enterprises Limited from Adroliv Investments Limited, a company owned by the sellers, which holds an 82% interest in Raspadskaya. Evraz has an existing holding of 50% of Corber and, following completion of the Acquisition, will hold an indirect interest of 82% in Raspadskaya's shares. The remaining 18% of Raspadskaya's shares will remain listed on the Russian Stock Exchange, MICEX-RTS.
As consideration for the acquisition, Evraz will issue 132.7 million new shares representing 9.9% of the existing issued share capital of Evraz; issue 33.9 million new warrants to subscribe for 33.9 million new shares representing 2.53% of the existing issued share capital of Evraz; and pay an amount, in cash, of $1,949.80 for each of 103,600 ordinary Corber shares, payable in four equal installments in Q1, Q2, Q3 2013 and Q1 2014. The warrants may be exercised at any time between 12 months and 15 months after completion of the acquisition and the warrants contain customary provisions relating to adjustments. Upon exercise of the warrants, it is expected that the sellers of the stake, Raspadskaya CEO Gennady Kozovoi and board member Alexander Vagin, will receive 11.06% of Evraz after warrants have been exercised.
Completion of the acquisition is expected to occur in Q4 2012 subject to receipt of customary regulatory approvals and satisfaction or waiver of other conditions.
Raspadskaya is one of Russia's largest producers of coking coal based on volume of production in 2011 and is located in the Kemerovo region of the Russian Federation. Raspadskaya is already a key supplier of coal to Evraz and Evraz is Raspadskaya's largest customer.
According to the international consulting firm IMC, as of 31 December 2011, the total proved and probable coal reserves of Yuzhkuzbassugol, Evraz's producer of coking coal, were estimated to be approximately 632 million tonnes. As of 31 December 2011, according to IMC, Raspadskaya had proved and probable coal reserves of 1,314 million tonnes.
Evraz's net leverage ratio as at 30 June 2012 was 2.48x. Corber's net debt at 30 June 2012 was US$330 million and the pro forma net leverage of the combined entity as at this date would have been 2.39x.
"The acquisition will increase Evraz's coking coal self-coverage, which is consistent with Evraz's stated strategy of growth in the raw materials for steelmaking," said Alexander Frolov, CEO, Evraz plc.
"Raspadskaya is already a key supplier of coal to Evraz and Evraz is Raspadskaya's largest customer. Through holding an equity interest in Raspadskaya since 10 March 2004 and having directors on the Board of OJSC Raspadskaya, Evraz has a clear understanding of the strengths and potential of Raspadskaya's business and is best positioned to benefit from acquiring an indirect controlling interest in Raspadskaya.
Following completion of this acquisition Evraz will become the largest producer of coking coal in Russia. We believe that the acquisition of Raspadskaya will generate substantial operational synergies to Evraz, including the optimal use of different coal grades in the combined portfolio.
"We value the strong expertise of the management team and we are happy that Mr Kozovoy, who has been the chief executive officer of Raspadskaya since December 1993, and has successfully helped to transform it into one of the largest coal mining companies in Russia, will stay in this position until at least the end of 2013," Frolov said.
The other 18% of shares in Raspadskaya will remain listed on the MICEX-RTS stock exchange.
SocGen analyst Sergei Donskoi said the cost of buying management out of Raspadskaya would probably work out at $3 a share, or small premium. He said the negative trends in the market ought to ease the negotiating process and that management would be more open to compromise. Evraz will find it easier to build its long-term strategy if it has control, Donskoi said.
Also, by consolidating 82% of Raspadskaya, Evraz will improve its debt position, given its low leverage and the coal company's considerable cash flows. The group can further its integration into coal and will be able to delay the development of coal fields in Tuva, analysts at BofA Merrill Lynch said.
Raspadskaya manages a group of enterprises within a coking coal complex, which includes Russia's biggest mine, Raspadskaya, as well as MUK-96, Raspadsky open pit, a mine now under construction called Koksovaya, an enrichment plant and infrastructure enterprises. In May 2010, deadly blasts at the flagship Raspadskaya mine killed 91 people and halted coking coal production until December that year. Raspadskaya has resumed production at some of the affected areas, but some mine workings in the accident zone are still smoldering.
The core shareholders tried unsuccessfully to sell Raspadskaya at the start of last year. They then started to try and monetize the asset by paying generous dividends and conducting a buyback.