Russian steel: Looking abroad

Russia's biggest steel company is planning to float itself in the West

IT IS a murky world, that of Russian steel, but light is coming in. This began last October when Mechel, number five in the Russian industry, raised $335m by selling 11.5% of its shares through an initial public offering (IPO) on Wall Street. Now Evraz, Russia's biggest steel firm, headed by Alexander Abramov, a sometime scientist, is heading for London. It plans an IPO there to raise $395m-495m for 8.3% of its equity.

London already lists half a dozen Russian shares, mostly in oil and gas firms such as Gazprom, but joined this month by Pyaterochka, a retailer. But Russian steel is something else again. Even now, four-fifths of Mechel is held by two men. Its New York prospectus had to admit it risked “significant” losses if Russia's taxmen challenged its transfer prices. Within weeks it was preparing a bid - not discussed in its prospectus - for the Russian government's 17.8% holding in Magnitogorsk, another big steel group, in which Mechel already held 17.1%. Officials from the Ministry of the Interior descended on Mechel's offices. It cried foul, then did a hasty U-turn and, rather than bid, sold its stake to the government-favoured and ultimately successful bidders for the state holding - Magnitogorsk's management.

Two years earlier Mechel and Evraz had been battling for control of a bankrupt iron-ore plant; a battle that became literally such when police with tear-gas clashed with pro-Mechel workers at the plant. Mechel hinted at hanky-panky. Nothing to do with us, said Evraz, and hit back with charges that Mechel - the plant's main owner as well as creditor - had been playing games with Evraz's ore supplies.

Evraz's launch too is raising some eyebrows. Its draft offer document, now being shown around by Morgan Stanley, reveals an American court case. The plaintiffs claim that 11 defendants, Evraz being one, by dubious means deprived them of their majority stake in a big iron-ore complex now part of the Evraz empire. Evraz says it bought the shares (later, from new holders) in the normal way of business

The document lists Mr Abramov as owning 65%, and his deputy 31%, of the firm that ultimately holds Evraz's assets. Happy men, given Evraz's turnover of $5.9 billion last year, and profit of $1.1 billion. But the two men had other partners at the start in 1992; are they now quite as much in sole control as they look? Yes, says Evraz.

Yet - cooling steel prices apart - the real risk for western investors in Russian steel is not the oddities of some bosses. It is those, as Mechel implied and other companies have painfully experienced, of Russia's taxmen, ready to pounce, arbitrarily or for political purposes, but not necessarily without arguable grounds.

So it is no surprise that Russia's steelmen see the outside world as a kinder place. They are both selling shares there and looking for assets. The share sales by Mechel and Evraz are unlikely to be the last. Novolipetsk, Russia's number four, has just got permission to list abroad; Magnitogorsk may do so later. The asset-buying has gone further. Two years ago, Corus, an Anglo-Dutch firm born from the merger of British Steel and Hoogovens, found itself, uneasily, with a new big shareholder, Alisher Usmanov, another of the steel oligarchs. He later sold out. But Severstal, Russia's number three, last year bought Rouge, an American steelmaker, and is among the suitors for Canada's bankrupt Stelco.

Evraz itself has just bought a manganese mine in Georgia, and is bidding for the Czech Republic's big, bust Vitkovice steelworks. Mastercroft, the firm that formally owns most of Evraz's steel and ore assets, has until now been registered in Cyprus. And the Evraz into which Mastercroft is being merged is not exactly the Russian one; it is an arm of the group newly set up and registered in Luxembourg. It is this arm that will issue the shares in London.

Russia's biggest steel company is planning to float itself in the west.

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