| Vladimir Lisin earned more than $600 million from NLMK shares The head of the Novolipetsk Iron and Steel Works, Vladimir Lisin, earned $609 million last Friday. His personal Cypriot offshore Veft Enterprises Ltd. presented for IPO on the London Stock Exchange 420 million shares of NLMK (7%), united in 42 million global depositary receipts, the placement price of which was $14.5 per GDR (i.e. $1.45 per share). Thus, the company's capitalization is estimated at $8.7 billion. Mr. Lisin could have offered more securities, but settled on the minimum volume - the placement price was lower than stock market experts expected.
The underwriters were UBS Limited and Merrill Lynch International. Under an agreement with NLMK, they have an option to purchase 1.05% of the plant's shares at the offering price. They can exercise their right within 30 days from the date of the IPO. If they use it, Mr. Lisin's revenue will be $700.4 million.
Investment company analysts predicted that the share, when placed in London, would cost no less than $1.5. It was at this price that NLMK shares were traded on Russian exchanges in recent weeks. At the beginning of the roadshow, some Russian analysts predicted the placement price to be no lower than $1.6, and the United Financial Group on the eve of the IPO even raised its forecast to $2.01 per share (if it had come true, the income from the placement would have amounted to almost $850 million). The analysts’ favorable scenario was based on the fact that the global metallurgical industry had at least overcome the crisis that overtook it in the spring, and NLMK was now on the rise, although not very high. Many compared the placement of shares of Mr. Lisin’s company with the IPO of Evrazholding, which took place in June. Evraz GDRs were then sold at the same price as receipts for NLMK shares last Friday. But in the summer, the placement of Alexander Abramov’s company was considered unsuccessful and the low price was attributed to poor market conditions. However, after the situation in the industry somewhat improved and steel prices began to rise gradually in August, the price of Evraz GDR on the London Stock Exchange rose to 17-18 dollars by the end of autumn.
Better results were expected from NLMK shares: the market went up, the company’s profitability was higher, and its facilities were more modern. However, analysts are now saying that NLMK’s placement is not so bad, that the company still has growth potential, and that the price of its shares will rise. “Of course, NLMK was placed lower than we predicted,” says Irina Lozhkina from Prospekt Investment Group. “But NLMK’s shares in London will begin to grow, although probably not immediately.” In her opinion, NLMK's not-so-successful placement is due to the fact that current forecasts for growth in world steel prices are not very favorable. “NLMK’s placement price was also influenced by the multiples of other Russian companies,” says Ms. Lozhkina.
MDM Bank analyst Andrey Litvin is also confident that NLMK shares in London will rise. When buying securities, investors take into account some growth potential, but the growth of NLMK shares on the market will depend not only on the situation in the steel industry, but also on the company’s development strategy, investment policy and on how the almost 2 billion on its balance sheet will be spent dollars in cash (with minimal debt), the expert believes.
On the eve of the placement, NLMK had just published a program of investments in the technical re-equipment of its enterprises until 2010. The company intends to spend $2.7 billion for these purposes. More than $1.5 billion of this will be allocated to the steel sector development program. Thanks to its implementation, NLMK expects to increase the output of steel products by 1.4 million tons per year (in 2004, the plant produced 8.6 million tons of finished rolled products and 9.1 million tons of steel). In addition, NLMK intends to increase the production of cold-rolled steel and coated rolled products. It is planned to invest 570 million in the development of the Stoilensky GOK, 430 million in the development of the Zhernovskoye-1 coal deposit, and 60 million in the Tuapse seaport.
According to the investment memorandum published before NLMK's IPO, Mr. Lisin's structures own 89.85% (or 5.4 billion shares) of the company's shares, the rest of the shares belong to minority shareholders or are traded on the free market. Anna LANDER |
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