6 May 2010 16:04

Mechel could sell prefs for $16-$17, offering oversubscribed

MOSCOW. May 6 (Interfax) - Mechel could sell its preferred shares at $16-$17 each, a financial market source told Interfax.

The bid book will close at 1:00 a.m. Moscow time on May 7. "The book-runners are promising it will be oversubscribed," the source said.

Mechel has lowered its official price range to $16-$22.8 per share from an original $21-$27.6, the source said.

Mechel said last week that the selling shareholders - members of the James Justice family - proposed to offer up to 49,952,488 preferred ADSs, representing 24,976,244 preferred shares, outside Russia, in addition to an offering of preferred shares to Russian and international investors. The price range was set at between $210 and $27.60 per preferred share and $10.50 and $13.80 per preferred ADS.

A source told Interfax this week that that the company could place its preferred shares at a discount of 20% against ordinary shares and that the volume of preferred shares on offer might be reduced by 30%-40%. Now, approximately 14.99 million-17.48 million shares or 18%-21% of the Justice family's shares might be placed.

The offering has been registered with the U.S. Securities and Exchange Commission (SEC). Morgan Stanley and Renaissance Securities (Cyprus) Limited will be acting as Joint Global Coordinators and Joint Book- runners for the offering.

Mechel tried to place 55 million prefs back in the summer of 2008, at $50.5-$60.5 per share and ADS, at a premium to the market. But the company put the placement on hold after coming under criticism from Prime Minister Vladimir Putin at a meeting in Nizhny Novgorod that July and after the financial crisis hit in during the fall of 2008.

Mechel later came to an agreement to buy Bluestone Coal Co from the Justice family for $436 million cash and 83.3 million preferred shares. The 55.5 million outstanding prefs remained on the balance sheet of Mechel subsidiary Skyblock Limited, and effectively became treasury shares. The agreement with the Justice family stated that the prefs would be sold publicly, market conditions permitting.

Mechel has consolidated controlling stakes in coal and steel companies and a number of ports. General Director Igor Zyuzin is Mechel's chief beneficiary. The free float is around 30%.