Severstal builds warchest with $13bn steel float

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Two Russian industrial giants detailed plans for listings on the London Stock Exchange yesterday, with the steel group Severstal setting a price range for its float next month as the steel pipe giant TMK priced its shares at the top of the expected range.

Severstal aims to amass a war chest for acquisitions of up to $1.88bn (££990m) through its flotation. It set a $11 to $13.50 price range yesterday, which values the company at up to $12.57bn and could see it net from $1.02bn to $1.88bn depending on whether it floats a 10 or a 15 per cent stake and how much investors are willing to stump up. In the grey market, IG Index priced Severstal shares towards the top end of the range at $12.85 to $13.15.

TMK, the world's second-largest producer of steel pipes for the oil and gas industry, priced its shares at $5.40 last night, valuing the company at $4.7bn. Its owner, Dmitry Pumpyansky, will be left with a 77 per cent stake after the listing, which is raising more than $1bn. The primary listing will be in Moscow, with global depositary receipts, each worth four shares, traded in London. The offer is understood to have been more than 15 times subscribed.

A third Russian firm, Pharmstandard, is planning an IPO in London by the end of the year, making it the first Russian pharmaceutical company to apply for a listing on the LSE.

Severstal, which is almost 90 per cent owned by Alexei Mordashov, has made no secret of its desire to aggressively expand. Earlier this year its bid for Arcelor was spurned at the last minute as the Indian-run Mittal Steel outbid the Russian firm in a sleight of hand that apparently enraged Mr Mordashov. The Russian oligarch is keen for Severstal to become one of the world's top three steel producers. It is currently sixth.

Severstal said it would use the proceeds of the London IPO to "to expand its core business ... including the funding of potential acquisitions of assets and participation in joint ventures".

The Kremlin would be likely to approve a merger between Evraz, Severstal and a metals company called Metalloinvest, controlled by Alisher Usmanov. Such a company would have a market capitalisation of $30bn.