Page 2 of
2 Kremlin writing on the wall for
Mittal By John Helmer
valuation of between $6 and $7
billion. Mechel's first-half revenues were $3
billion, with roughly the same revenue value
expected for the second half of the year, if
stainless and other specialty steel prices remain
stable; after-tax income to June 30 was $489
million. Alrosa's revenues from diamond sales last
year amounted to $2.8 billion; after-tax income
was $572 million; this year, the company has
announced that its revenue target will be $2.9
billion; its after-tax
income, $557 million. Financially, Mechel is
growing; Alrosa is stable to shrinking.
Official announcements from the Sakha
region government indicate that over the past
fortnight, the region and Alrosa had struck a
private agreement with Mittal that he would
support their bid for the coal assets; he also
promised to build a steelmill in the Sakha region,
if together they won the coal contest. With
Mittal, Shtirov appears to have double-crossed
Mechel, and double-timed the Kremlin.
Mittal also lodged a separate, sole bid
through a local company called Kolorprofile.
Sources at the state property fund confirm that
Kolorprofile was excluded from the bidding, and
not allowed to participate. The only rival bidder
allowed in the contest was Alrosa, bidding through
Yakutugol.
But Shtirov and Vbybornov
over-reached themselves. Federal government
officials have been hostile to the Sakha
administration for refusing to comply with the
federal government's restructuring of Alrosa's
shareholding, and have been considering several
options for changing the board chairman, Finance
Minister Alexei Kudrin, and Vybornov, both
considered too close to, or too soft with Sakha
president Shtirov. Shtirov himself was reappointed
by Putin last January. But his seat is only secure
until the December parliamentary elections or next
March's presidential election. After those
uncertainties have been resolved, Shtirov's value
to the Kremlin will evaporate, and he can be
removed for a more compliant figure.
Kremlin sources also reveal that days
after his September appointment, the new prime
minister Victor Zubkov had proposed removing
Kudrin from the finance ministry, and replacing
him. One candidate for the opening was Dmitri
Kozak, a St. Petersburg lawyer who has been the
Kremlin's negotiator in the war-torn Caucasus for
the past three years.
This plan was
changed by Putin at the last minute, and Kudrin
was promoted to deputy prime minister. He hung on
to the finance portfolio, while Kozak was assigned
the limbo ministry of regional development. He
must now wait for another reshuffle, probably in
December. Kudrin may be obliged to give up his
chairmanship of Alrosa.
The indecision and
faction fighting surrounding the finance ministry
and Alrosa just days before the coal auction ought
to have persuaded the Mittal family not to risk
their name with such a risky power play. Whether
it was father or son, who decided to take the risk
is not known. But they jumped without their
parachutes last Friday and on Saturday their crash
was displayed across the front pages of Moscow's
newspapers. The London newspapers protected Mittal
from his embarrassment with silence.
On
the surface, Mechel's controlling shareholder,
Igor Zyuzin, who was at the auction rooms for the
bidding, won an easy victory, allowing a company
spokesman to announce that it had secured $2
billion to put in the envelope for its winning bid
from ABN Amro and BNP Paribas. Mechel has also
said that it has undertakings from Sumitomo and
Mitsui, Japanese coal traders and importers, to
finance and develop mine plans for the coal. The
Japanese will be allowed to take minority stakes
in a float of the newly consolidated assets; the
big Indian cannot charge that it was the color of
his skin, no more than the color of his money,
that led to his exclusion.
There is,
however, a catch for Zyuzin. In return for making
him a coal king, the Kremlin may have extracted
his promise to sell the Mechel steel division.
Mechel remains stonily silent about the proposed
sale of the steel division to a state-owned
specialty steel holding called Russpetstal
(Russian Specialty Steel), which is owned by
Rosoboronexport (ROE), the state owned arms export
monopoly. Headed by Sergei Chemezov, ROE and its
affiliates and spinoffs are acquiring mineral and
metal assets upstream of strategic arms and heavy
machinery manufacturers.
Mechel was
identified a year ago as one of Chemezov's
targets. But there has been no official
announcement regarding the ongoing sale
negotiations with Zyuzin, Mechel's controlling
shareholder. Chemezov hinted in September that ROE
has made Mechel an offer - and that Mechel had not
responded. ROE now emphasizes that the offer is
limited to Mechel's stainless steel production
assets, not the group's coal, iron-ore or nickel
mines. And there you have the shape of the deal
that appears to have been made between Mechel's
Zyuzin, Chemezov, and Putin. Zyuzin wins, but he
must share with the state. Mittal turns out to
have been the carpetbagger who thought he could
grab the loot and run .
Mechel's chief
executive Alexei Ivanushkin reacted to Mittal's
public bidding by calling it "public relations,
and not so successful. First of all, a
metallurgical plant assumes the presence of
numerous qualified manpower, which is not present
in Yakutia. Secondly, the energy required for
steelmaking is costly, and in Yakutia there is an
observable deficiency of electric power. If
Arcelor Mittal would get access to coal supplies,
it can use them as a lever of pressure on Russian
metal companies..."
Ivanushkin also
pointed out that the Mittal move had been a
surprise. "Two or three weeks ago, no one had any
understanding of the intentions of Arcelor Mittal.
But at many meetings, from the lips of the
president and the prime minister, there was the
message that Elgaugol is a strategic asset which
only a Russian investor should operate." Ahead of
the shareholding auction, Ivanushkin said he
expected that a restrictive measure would be found
to deal with Mittal's bid "in our national
interest". And so it was.
John
Helmer has been a Moscow-based correspondent
since 1989, specializing in the coverage of
Russian business.
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