Russia’s Mechel Steel prices IPO, begins trading

Just hours before the opening bell, Russian steel maker and base-metal miner Mechel Steel (MTL-N) set the price of its initial public offering on the New York Stock Exchange at US$21 per American depositary share, at the top of a previously announced range of US$19-21.

Mechel offered and sold 13.9 million ADSs, each representing three common Mechel shares.

The total offering represents 10% of the company’s Mechel’s market capitalization of US$2.9 billion.

Mechel General Director Vladimir Iorich and Chairman Igor Zyuzin placed 4.83% each from their stakes (each held 47.8%). As a result, they have reduced their holdings in Mechel to 43% each.

As well, current shareholder Mechel Trading sold its stake down to 3.2% from 3.4%, and remaining Mechel management and personnel have wound up owning 0.87% of Mechel.

It is the first initial public offering of a Russian company on the NYSE since Wimm Bill Dann Foods (WBD-N) went public two and a half years ago.

UBS Ltd. has been the sole bookrunner for the Mechel offering, with J.P. Morgan Securities and Morgan Stanley & Co. International serving as co-lead managers.

Established in March 2003 and based in Moscow, Mechel is one of Russia’s largest manufacturers of specialty steels and alloys, and is the country’s second-largest producer of long-steel products.

Output is sold to the automotive, construction, chemical, and rail sectors both domestically and internationally.

In the first half of 2004, Mechel produced: 2.9 million tonnes of steel; 2.6 million tonnes of rolled products; 1.9 million tonnes of pig iron; 1.5 million tonnes of coke; 291,000 tonnes of hardware; and 26,400 tonnes of steel stampings.

Upstream, the company owns and operates coal, iron-ore and nickel mines throughout Russia:

* In the city of Mezhdurechensk in Kemerovo Oblast, Mechel’s Southern Kuzbass Coal Co. is one of Russia’s largest producers of coking and steam coal. Mechel says that Southern Kuzbass “has considerable volumes of recoverable reserves in the region, including a substantial percentage of coking-grade coal, and promising coal deposits.”

* In the city of Zheleznogorsk-Ilimskiy in Irkutsk, Mechel subsidiary Korshunov Mining Plant operates an iron-ore mining and milling complex, with feed being sourced from the Korshunov, Rudnogorsk and Tatyanino iron-ore deposits.

* Farther west in the city of Orsk in Orenburg Oblast, Michel’s Southern Urals Nickel Plant is a major Russian producer of nickel and nickel compounds, using feed from its Sakhara and Buruktal mines.

With its financial year ending Dec. 31, Mechel last posted annual earnings of US$144 million on revenues of US$2.05 billion.

In the late morning on Oct. 29, its first day of trading on the Big Board, Mechel was trading at US$20.85, with 4.8 million shares having changed hands.