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Russia's men of steel are coming to London

Andrew Osborn
Friday 02 February 2007 01:53 GMT
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Russia's single largest steel mill, a Stalin-era showcase that was once hailed as a model of Soviet success, is drawing up plans to list on the London Stock Exchange later this year. Russian regulators have given the Magnitogorsk Iron and Steel Works, known simply as MMK, permission to place up to 25 per cent of its shares abroad.

Details of its float are expected to be unveiled between now and April, although company officials have said London will almost certainly be the chosen listing venue; some shares are also likely to be placed in Moscow simultaneously.

Analysts have said MMK will try to raise at least $1bn, if not more, and that part of the rationale for the float is to get Western experts to properly value the business in order to pave the way for future mergers with other big players in the steel industry. Earlier this week, MMK disclosed various pre-float information in an 870-page document posted on its website. The company is run and is thought to be largely owned by 58-year-old Viktor Rashnikov.

The publicity-shy oligarch and a group of like-minded managers are thought to control 99 per cent of its capital, though this has never been publicly disclosed.

Instead the company is controlled through an opaque patchwork of Cyprus-registered companies. Mr Rashnikov began his career as a humble fitter in one of the plant's workshops but now chairs the company's board.

With an estimated personal fortune of £2.9bn, he is Russia's sixteenth wealthiest individual, according to Forbes magazine. The Siberian mill is Russia's largest steel producer and one of the most glittering jewels in the country's industrial crown.

It played a key role in Joseph Stalin's five-year plans in the 1930s, producing its first pig iron in 1932. Unlike others, it has flourished in Russia's uncertain post-Soviet economy. Inside Russia, the plant is best known for its legendary status during the Second World War when it churned out half of all Soviet tanks and ammunition.

Originally modelled on Pittsburgh's steel works, MMK provides jobs for many of the city of Magnitogorsk's 400,000 residents.

Mr Rashnikov openly enjoys the support of President Vladimir Putin. He held a meeting with him in the Kremlin recently at which it is thought he sought and obtained the Russian leader's permission to go ahead with the IPO. Since becoming the plant's general director in 1997, Mr Rashnikov has resisted hostile takeovers and blackmail; as a result MMK is the last non-public large steel company in Russia. Officially Russia's third largest steel producer, it has a market capitalisation of around $9bn and posted net profits of $947m in 2005.

Last year, it produced 12.46 million tonnes of crude steel, up 9.4 per cent on the previous year.

The company meets about one-fifth of Russia's domestic steel needs and around half of its output is exported worldwide. The company's fate is inextricably linked to Russia's ambitions to consolidate its position as an energy superpower, since much of its steel is used in the manufacture of gas pipelines. The company is expected to play a major role in building pipelines for Russia's North European Gas Pipeline under the Baltic Sea.

It is also expected to win lucrative contracts to supply pipelines to Russia's offshore Shtokman Arctic gas fields and for other projects exporting gas to China.

MMK is part of a clutch of Russian companies eager to float in London before March next year when Vladimir Putin is due to step down.

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