Russian miner Mechel OAO (MTL) declared the closer of the deal on disposal of 100% of Toplofikatsia Rousse EAD (TPP Rousse, Bulgaria) shares. This marks the second deal for disposal of the company's non-core assets that completed in 2013.
According to the Dec 2012 sale and purchase agreement, 100% of Toplofikatsia Rousse EAD's shares were sold to a privately-held Bulgarian power company Toplofikatsia Pleven. The disposal value was roughly €29 million ($37.3 million) considering the asset’s equity value. The deal also states that TPP Rousse will repay its debt to Mechel Carbon for coal deliveries that amounted to $18.8 million.
TPP Rousse, which had nearly 300 employees as of Dec 31, 2012, generated 364 GWh of electricity and 235 Gcal of heat power in 2012 and earned revenues of 56.8 million lev.
The financial advisors for the transaction were VTB Capital and UniCredit Bank and CMC acted as the legal advisor to Mechel. This deal will enable Mechel to focus on consolidating its leading metallurgical coal producer’s position, strengthening its position in steel products for construction and increasing its share value for high value-added steel products. The restructuring program of the Mechel’s assets, which was previously approved by its Board, led to this transaction.
Mechel posted a loss in the first quarter of 2013, hurt by the sale of its Romanian steelmaking assets. Revenues suffered a double-digit drop with declines across the board. Sustained weakness was seen in the core mining segment. Mechel also announced its decision to buy back $100 million of ADRs (representing its common shares) reflected its confidence that the fundamental value of its share is higher and meets the interests of its shareholders.
Mechel’s high debt and substantial interest burden are matters of concern. Mechel is also faced with weak demand from Europe. However, we are encouraged by the incremental opportunities stemming from the Elga mine, which is expected to reinforce the company’s position as a metallurgical coal producer through capacity expansion.
Mechel retains a Zacks Rank #4 (Sell).
Other companies in the steel industry with favorable Zacks Rank are Kobe Steel Ltd. (KBSTY), Shiloh Industries Inc. (SHLO) and Nippon Steel & Sumitomo Metal Corporation (NSSMY). All of them hold a Zacks Rank #1 (Strong Buy).
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