OJSC Novolipetsk Steel (LSE: NLMK), the leading Russian steel producer, announced that it has entered into an agreement to acquire a 50%+1 share stake in OJSC “Maxi-Group” (Maxi-Group) from its founder, Nikolai Maksimov. The acquisition price is approximately USD 600 million, payable in two installments: the first USD 300 million installment to be paid after the controlling stake has been transferred to NLMK, with the second USD 300 million installment (subject to price adjustment) to be paid after completion of due diligence. In the first half of 2008 Maxi-Group will carry out a capital increase of approximately USD 1.2 billion to be subscribed by NLMK and Mr. Maksimov pro-rata to their shareholdings. Maxi-Group’s results will be consolidated by NLMK from December 2007.
This acquisition is in line with NLMK’s strategy to expand its operations in Russia. NLMK believes the acquisition will give the company a significant share of the domestic long products market, particularly in rapidly developing regions such as Urals, Volga, and Central and Southern Regions.
This transaction will also contribute to the future development of high value added niche products such as hardened rebar, and seamless pipes.
The company also expects that the acquisition of Maxi-Group will lead to NLMK’s 100% self-sufficiency in steel scrap, which is an important competitive advantage given projected higher scrap prices in Russia.
NLMK’s President, Aleksey Lapshin, commenting on Maxi-Group acquisition, said:
“The acquisition of a controlling stake in Maxi-Group advances NLMK’s strategy to fully serve the domestic market needs. Demand for long products for the construction sector is growing rapidly making these markets highly promising. Maxi-Group’s acquisition provides a new catalyst for NLMK’s dynamic development, enabling the company to strengthen its leadership in the supply of finished steel products in Russia. We are confident that this acquisition will help us to meet rising demand from the growing domestic economy, develop new markets and gain further competitive advantages for the future growth of NLMK.”
Maxi-Group’s growth model is based on developing a network of mini-mills producing long products, seamless pipes, metal-ware and, potentially, flat steel products in regions with high demand growth and extensive scrap resources. Scrap collection and processing in local markets and further supply of finished products to these markets underlie Maxi-Group’s competitive strength.
Maxi-Group’s strategy envisages an increase in steelmaking capacity from 2.4 to 5.9 million tonnes, long product capacity from 1.3 to 4.4 million tonnes and installing seamless pipe capacity of up to 1.5 million tonnes by 2012. NLMK estimates total capex from 2008 to 2012 to be USD 3.7 billion. The capex programme will be funded from Maxi-Group’s own generated and borrowed funds.
After the acquisition of Maxi-Group, NLMK intends to grow its business by rapidly increasing finished product output, maintaining low production costs and developing raw material base. Maxi-Group will compete with established integrated producers through low cost local production and regionalized sales to growing markets.
At present, Maxi-Group’s total debt is approximately USD 1.8 billion. From December 2007 the shareholders intend to restructure the group’s existing debt by extending stabilization loans. NLMK has already granted a USD 400 million loan to Maxi-Group secured by shares of main production assets. In early 2008, Mr. Maksimov and NLMK are both expected to provide short-term stabilization loans of USD 300 million to Maxi-Group. As a result of the additional stock issue during H1 2008, Maxi-Group will be recapitalized, with new equity replacing shareholders’ loans. The remaining indebtedness will be restructured to reduce interest costs and extend debt maturity. These measures will make the debt structure more efficient and reduce the overall debt level already in H1 2008.
Maxi-Group comprises several enterprises for the production of ferrous metals, which form a production system, from collecting and processing scrap to manufacturing rolled products. Maxi-Group is organized into two divisions: Metallurgy and Scrap Collection.
The growth strategy of Maxi-Group’s Metallurgy division is based on existing production sites and launching new mini-mills in Urals, Central and Volga regions of Russia. The product mix of the existing production sites comprises billets (2.4 million tonnes), rebar (1.3 million tonnes) and metal-ware (0.55 million tonnes).
The Scrap Collection division includes 300 scrap collection yards located in 38 regions across Russia with total capacity of 3.0 million tonnes. The estimated scrap collection volume in 2007 is 2.3 million tonnes.
Based on Maxi-Group’s management accounts, EBITDA for 9M 2007 is estimated approximately USD200 million. The estimated total debt amounted to USD1.8 billion.
|
.jpg){kind=small}
