Friday, 15 July 2011

Akhmetov’s mushrooming Metinvest metallurgical group snaps up another steel mill

Ukraine's richest man has a strong grip over Ukraine's lucrative steel sector.

Rinat Akhmetov, reputably Ukraine’s richest man and a strong backer of President Viktor Yanukovych, has further strengthened his grip over Ukraine’s lucrative steel industry.

Metinvest, the largest steel holding in Ukraine which Akhmetov co-owns with partners, announced on July 8 that it had inked an agreement to acquire a 50-percent stake in Zaporizhstal, one of the nation’s top-five producers.

In a statement, Metinvest said it had agreed buy the stake in Zaporizhstal from Industrial Group, which is reportedly owned by domestic businessmen. Metinvest said agreements signed also gave it an “option” over the remaining 50 percent stake in Zaporizhstal, which analysts say is controlled by either domestic or Russian business groups.

“We estimate Metinvest paid about $450 million for the 50-percent stake in Industrial Group, valuing it at about $900 million,” Dragon Capital said in a July 11 note to investors.

The acquisition comes days after Metinvest announced a 31-percent rise in profits for 2010 in year-on-year terms. The company’s consolidated net profit surged to $437 million in 2010 from $334 million a year earlier on higher output and revenues, Reuters reported on July 1.

The privately-held firm increased its revenue to $9.4 billion in 2010 from $6 billion in 2009, its audited financial report showed.

Metinvest owns iron ore and coal mines, ore enrichment plants, smelters and other connected companies in Ukraine and abroad.

The Zaporizhstal acquisition comes months after Metinvest added Illich Metallurgical Plant, one of Ukraine’s top three producers, to its impressive portfolio of steel mills, ore producers and coal mines spanning from Ukraine into Europe, where it owns rolling mills in Italy and the UK, and further across the Atlantic into the U.S. It also follows a $1 billion purchase by Metinvest of a U.S. coal company during the 2009 recession.

The flurry of acquisition further lift Metinvest – which increased steel output to 13.8 million tons in 2010 from 12.8 million the year before – higher into the rank of top world steel industry players.

Prior to the purchase, Metinvest already owned two of Ukraine’s three largest steel mills in Ukraine – Azovstal and Illich – giving a dominant position in a country ranked as one of the world’s largest steel producers and exporters. The group also controls a large share of Ukraine’s vast ore and coal mining production capacity and reserves.

“The group’s main asset is Zaporizhstal, an integrated flat steel producer with annual capacity of 4.5 million tons of crude steel (3.7 million tons of rolled steel). As part of the deal, Metinvest also acquired, directly through Industrial Group or indirectly through Zaporizhstal, stakes in iron ore producer Zaporizhia Iron Ore, coke producer Zaporizhkoks and a number of smaller companies,” Investment Capital Ukraine analyst said in a July 11 note to investors.
Gaining control over Zaporizhstal and its consolidation into Metinvest’s steel division will mean for the holding a 27-percent increase in crude steel production capacity to about 21 million tons per annum, a 41-percent rise in plate mill production capacity to about 12 million tons per annum, and a concentration of the vast majority of Ukraine’s production of rolled-steel coil,” they added.

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