Abramov, Abramovich and Frolov climbed into coke

Evraz will strengthen its position in the coal market with the help of Sibuglemet.
Evraz Roman Abramovich, Alexander Abramov and Alexander Frolov won the VEB competition for the management of Sibuglemetom. With the release of about 5 million tons of coking coal a year, Sibuglemet is one of the troubled assets of the state corporation, its debt is about $ 3.5 billion. Sources at Kommersant say Evraz has received an opportunity to enter the asset in the future, which will strengthen its leadership in the sector: the combined company would have outstripped the production of coking coal concentrate by the second-largest Mechel by 2.5 times.

Evraz won the VEB competition for the management of Sibuglemetom, sources familiar with the situation told Kommersant. According to them, the management contract can be concluded "on the same terms as before" (Evraz managed the asset from 2015), but details are not specified. It is also important, Kommersant sources say, that this victory gives the company the opportunity to enter into the capital of Sibuglemet with an annual output of about 5 million tons of coking coal. The company's reserves were estimated at 300 million tons.

The beneficiaries of Sibuglemet are not disclosed, but according to Forbes, which Kommersant's sources confirmed, they are about the structures of the investment company Vardanyan, Broytman and Partners, which hold shares of Sibuglemet and the Industrial Union of Donbass (ISD) in the interests of VEB. According to Kommersant sources, the coal company in 2013-2014 in several stages was redeemed from its founders with the participation of Suleiman Kerimov and the Acropolis group Ibrahim Palankoyev, in order to become a raw material base for the ISD, but the war in Ukraine confused these plans. At the end of 2014, Evraz became the de-facto governor of Sibuglemet. Since 2017, Sibuglemet, ISD and a number of other distressed assets have moved to the Fund of Industrial Assets, established by VEB, in November 2017 the State Duma approved the state guarantees to the fund in the amount of 862.8 billion rubles. for 30 years.

The total debt of Sibuglemet and its shareholders is estimated by Kommersant sources at approximately $ 3.5 billion - loans from VEB and VTB. In August 2017, the group's companies began to be reorganized, with the creation of the parent company OOO "Sibuglemet" in Russia, "which Kommersant's interlocutors called pre-sale preparations (see" Kommersant ", August 23, 2017).

As Kommersant wrote in November, in the end, VEB decided to hold a tender to manage Sibuglemetom, and not just extend the contract with Evraz to get the maximum number of offers. In addition, sources said, "Kommersant", in the conditions of the contest could contain an option to buy a coal company. Kommersant's interlocutors then told that in addition to Evraz interest in the asset was shown by Severstal Alexei Mordashov, SUEK Andrei Melnichenko and Vostokugol Dmitry Bosov. There were other applications, said Kommersant's interlocutors later, not revealing them. VEB CEO Sergey Gorkov in December told Vedomosti that Sibuglemet was a good asset, but "was bought at an inflated price." According to him, "in February-March" this year, VEB can "tell what scenario will be implemented."

Two sources of Kommersant confirm that Severstal and SUEK did study the asset, but since it was not just about management, but also about the subsequent acquisition, they decided not to participate in the final round due to the high debt burden of Sibuglemet and insufficient, in their estimation, volume of stocks. Another source of Kommersant objected that the participants were not obligated to buy Sibuglemet, although VEB "wanted to hear from the contenders options for the long-term development strategy of the coal company." For Evraz "Sibuglemet" is interesting because the company can better feel the conjuncture in the market, get synergy due to proximity of assets and complementarity of portfolios of coal brands, sources of "Kommersant" say.

Now Evraz is closing its coal needs by 60% and plans to increase this share to 100% within five to ten years due to the development projects for the extraction of hard grades (K, KO, OS, KS). These brands are just in the "Sibuglemet", follows from the reports of the main asset of the group - JSC "Mezhdurechye". The combined production of coking coal concentrate of both companies reaches 20 million tons per year - this is 2.5 times more than that of Mechel's Igor Zyuzin.

In VEB, Evraz, Severstal, SUEK refused to comment, Vostokugle was not answered by Kommersant.

The interlocutor of Kommersant in the investment market expects that the EBITDA of the coal segment Evraz in 2017 will be about $ 1 billion thanks to high prices, and if stabilized, it will drop to $ 600-700 million. Sibuglemet estimates EBITDA at $ 350-400 million, calling the normal level for the company $ 200 million. "Obviously, buying Sibuglemet only makes sense if you write off two-thirds of the company's total debt and its shareholders," he said. But even without this deal, Evraz, through asset management, is able to market large volumes of coal, gaining a strong negotiating position in the market, he points out.

Boris Krasnozhenov from Alfa Bank agrees that the acquisition of Sibuglemet is possible only with the restructuring or writing off a significant part of the debt. Five to six years ago, when the IPO of Mechel Mining (the mining division Mechel) was being prepared, the possibility of a similar Evraz move was being discussed on the market, the analyst recalls. In terms of coal self-sufficiency, Evraz does not have an acute need to purchase assets, he continues, but the merger of Raspadskaya, Yuzhkuzbassugol and Sibuglemeta, followed by the withdrawal of the structure to the exchange, is an interesting option. Now premium brands of coking coal are at a spot around $ 225 per ton, demand in China is growing, and there are no big new projects on the market, Mr. Krasnozhenov says. In a presentation in October 2017, Evraz pointed out that global demand for coking coal could grow to 353 million tons by 2022 (an increase of 7% by 2017).