Russia's coal company SUEK prepares to hold IPO

Updated September 1, 2008

   The major Russia’s producer of steam coal - the Siberian Coal Energy Company (SUEK) - can hold IPO at the London Stock Exchange (LSE) already in 1Q of the next year. The extraordinary meeting of the company’s stockholders should approve the additional issue of stocks that will obviously take part in the IPO. The experts say that the industry situation is quite favorable, and estimate SUEK at $6-7 billion; still they don’t forecast the results of the placement because of the dire situation at the stock market.

   On Friday, August, 29, SUEK reported that the company’s stockholders would consider the conducting of the additional issue of stocks by the private subscription during the extraordinary meeting of stockholders on October, 6. The meeting will be held in lieu. The parameters of the future additional issue are not discussed. "They will be approved by the directors’ board about 20 days before the stockholders’ meeting", as the source in SUEK reported. The source in the company says that the additional issue is related directly to the plans of holding the IPO. He reminds that the managers are chosen: they are Citibank, Renaissance Capital and Morgan Stanley, and the mandates with them will be signed in September. Probably, the placement will be held at the London Stock Exchange (LSE), and the approximate date is 1Q of 2009.

   SUEK is the largest producer of steam coal in Russia, and the company occupies the 7th place in the Top-10 of the world companies belonging to this sector. In 2008 SUEK plans to extract about 95 million tons of coal. SUEK owns the coal assets, as well as the stockholdings in TGC-12 and TGC-13. Andrey Melnichenko and Sergey Popov control SUEK through Donalink Ltd pari passu.

   SUEK doesn’t expose the additional issue volume and the parameters of the placement. Still, the investment bankers name two possible schemes. The first one -a depositary bank that will place GDRs (Global Depositary Receipt) among the investors receives the additionally issued stocks. So, in this case, the stocks of the new issue will take part in the IPO. The second one - SUEK’s stockholders, Andrey Melnichenko and Sergey Popov, will bring old securities to the stock exchange, and then will transfer to the company’ balance sheet either some part or all received facilitates via the additional issue. In the last case, the stockholders can share the money flows between themselves and the company.

   The investment bankers estimate cautiously SUEK’s prospects. On the one hand, in 2009 the situation at the coal market will be less favorable as compared to this year. According to the director of UBS’s analytical department Alekesy Morozov, the steam coal market faces the structural surplus that would hardly disappear in the next year. The core reason is the move of People’s Republic of China to the net importers of coal. The spot prices are already higher than the contract ones, and this fact points at the surplus presented at the market. According to the forecasts of UBS, in 2008 the world price for steam coal attains $125 per ton, in a 2009 it settles at $160 per ton. SUEK takes advantage of the fact that now the stocks of only Russian companies specializing in the coking coal instead of the steam coal are traded at the market: Raspadskaya and Yuzhny Kuzbass. There are no valuable Russian securities of the steam coal sector at the market. The Bank of Moscow’s analyst Dmitry Skvortsov estimates SUEK’s fair value at $6-7 billion.

   Nevertheless, Aleksey Morozov states that the situation at the stock market is unclear. Dmitry Skvortsov reminds about the other possible risks. "Mechel’s case influenced on the overall mining and metallurgical sector and resulted in the quotations’ fall". Moreover, according to the expert, since the beginning of the year the securities of the energy companies, OGCs and TGCs foremost, fell twice or even trice on the background of the market fall of 30%. Finally, the political risks also influence negatively on the securities of the Russian companies - Russia’s participation in Georgia-South Ossetia war conflict and the confrontation with the West