26 Apr 2010 13:56

Mechel preferred shares to be placed at 10%-25% discount to ordinary - analysts

MOSCOW. April 26 (Interfax) - An impending offer of preferred shares in Mechel coal and steel group will be priced at a 10%-25% discount to ordinary shares, analysts said.

James Justice and family, who own 83.3 million preferred shares in Mechel, may offer a portion of their holdings for sale.

"We believe the preferred shares will be placed with a 15%-20% discount to the market price of ordinary shares on one of the leading global exchanges (London or New York), as well as the RTS and MICEX," Uralsib analysts said. The discount will reflect the lower liquidity of preferred shares and the fact they are not voting shares.

Analysts at another bank, UniCredit, believe the discount might amount to as much as 25%, which is the average for placement of preferred stock in Russia.

Deutsche Bank's Olga Okuneva said the size of the stake offered would depend on market liquidity. "There are a lot of placements being conducted right now," she said. "If half of Justice's stake is sold, that would be a major placement." The shares would need to be discounted up to 20%, she said.

"It's difficult to evaluate the investment appeal of this instrument at the moment. But given the generous dividend policy [Mechel preferred shares receive 20% of US GAAP profit as dividends], the company's preferred shares are quite interesting," UBS analyst Kirill Chuiko said.

News of the preferred placement will likely have a negative impact on Mechel ADR prices in the short term, since many investors will want to replace their ordinary shares with preferred shares.

Mechel ADR closed on Friday at $27.46 each on the New York Stock Exchange.

Mechel has declined to comment.

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%.