The poorest oligarch: who will rescue Igor Zyuzin after the story with "the doctor"

Mechel has been on the verge of bankruptcy for five years, but it seems that for Igor Zyuzin it doesn't matter at all.
Origin source
On his own personal Black Thursday, July 24, 2008 the owner of "Mechel" Igor Zyuzin suffered a blow of terrible strength. He decided not to attend the meeting "On measures to develop ferrous metallurgy and supply metal to the internal market", pretending to be sick. Zyuzin knew that he had been chosen for the exemplary flogging because of the high prices on raw materials for metallurgy, and decided that it would be better to do as he did, says his friend. It turned out much worse.

Immediately after the protocol enters the chair of the meeting, Prime Minister Vladimir Putin recalled Zyuzin with sickness and that his "Mechel" sold on the export of raw materials at prices two times lower than domestic. "And where the margin in the form of taxes to the state?" - All circling brand basilisk stare, said Putin. "I think Igor Vladimirovich should get better as quickly as possible Otherwise, the doctor will have to send him and to clean all these problems,." - Looking askance, Putin continued, adding that the requests to draw on "Mechel" special attention to the Federal Antimonopoly Service. "And maybe even the Investigative Committee Prokuratovry". Quotes "Mechel" shares on the RTS on the same day collapsed by 38%.

Everyone knew that the documents for the meeting prepared for Putin sitting at the right hand of his new deputy, Igor Sechin. Everyone remembered that the destruction of Yukos began with tax claims. The market thought that he heard the sentence, "Mechel". But since then, it took more than five years, and the company Igor Zyuzin's working so far: but only through continuous assistance. In the slang of investors and market analysts such companies are called "zombies". The industry crisis is over, all the steel companies are losing revenue and profits, but "Mechel" the worst of all: he had a record high leverage. So why the company, whose debt exceeds $ 9 billion and a market capitalization over the past 5years has fallen by 15 times (to $ 1.6 billion), is still alive and who helps her to stay afloat?

Big hopes

And it is in 2008 should be a year of "great achievements" for the "Mechel": through the sale of "preferred shares" and the IPO "daughter", "Mechel Mining" company hoped to raise up to $ 4 billion, which make it possibleLyali actually close the issue with a large debt - $ 5.4 billion at the end of 2008. Due to the aggressive buying of assets debt has grown almost 10-fold since late 2004.

In October 2004, "Mechel" held an IPO on the New York Stock Exchange. The moment for going public has been very successful: only 2004 prices for hot-rolled steel, for example, rose by half, to $ 600 per ton of coking coal has risen in price by 24%, to $ 57 per ton. "Mechel" pleased investors excellent performance: revenue in 2004 - $ 3.6 billion, EBITDA of - $ 1.7 billion, net profit - $ 1.3 billion, the debt - to $ 565 million a year earlier created "Steel group" Mechel "(the. original name of the company) was considered one of the most conservative in the financial sense - its owners have tried not to attract loans At the end of 2004, the "Mechel" did not have any net debt, the money the company had twice. as much debt.

In the money creators "Mechel" Igor Zyuzin and Vladimir Iorih not needed: becoming a partner in 1995, they earned in the sale of Kuzbass coal, then began to buy shares of the coal enterprises. Iorih in Sulphurdine 1990s went to Germany by taking on loans and sale of coal in the West, Zyuzin was responsible for other aspects of their trading company "Uglemet". They perfectly complement each other: the hard, sometimes aggressive, but able to work "on the ground" Zyuzin and very cautious, thoughtful Iorih, master of building sales and financial schemes. In the late 1990s, they bought a controlling stake in the company "Southern Kuzbass" and then - "Mezhdurechenskuglya" and a number of smaller companies. By 2001, Zyuzin and Iorih controlled enterprise with the production of 12 million tons of coal a year and three processing plants. And then we decided to become more and metallurgists.

In 2001, the partners bought a controlling stake in the Chelyabinsk Metallurgical Plant (JSC "Mechel"), at the time of the eighth-largest steel producer in Russia, but the main domestic producers of special steels for the defense, nuclear and other industries . Zyuzin and Iorih offered the owner of the plant, the Swiss Glencore about three times more than were willing to pay the competitors, - $ 133 million for a controlling stake. In the next three yearscoal miners were the main owners of four relatively small metallurgical plants in Russia, three - in Eastern Europe, iron Korshunov Mining Plant, Seaport Posiet, as well as 17.1% of the shares of "Magnitogorsk". In 2003, Zyuzin and Iorih combined all its coal, steel and mining assets in "Steel group" Mechel "has become the fifth largest steel producer and the fourth - coal And a year later brought it to the stock exchange..

According to a representative of one of the foreign banks, the preparations for the IPO in more managed Iorih. Two years before going public "Mechel" has hired a specialist in IPO Jan Castro of the law firm Latham & Watkins, who had engaged in the placement on the NYSE MTS and "Wimm-Bill-Dann". According to Ed Kaufman, while managing director of the Brunswick UBS, IPO organizer of "Mechel", NYSE stringent reporting requirements are not frightened by the owners of "Mechel" - and Zyuzin and Iorih wanted to make the company as transparent as possible. In October 2004, 11,5% ADS for the shares of the new company were sold on the NYSE at $ 335 million, the entire company was valued at $ 2.9 billion. That same year, the main owner of "MMK" Victor Rashnikov redeemed at "Mechel" MMK shares for $ 870 million. After the IPO, Zyuzin and Ioriha left by 42.97% of the company.

Record after record

"The main strategic goal of the group" Mechel "is very simple: the company has to get more and more profit - to the delight of investors, including us," - said in an interview Iorih "Vedomosti" in early 2005. But next year disappointed: steel prices began to decline, EBITDA of "Mechel" in 2005 fell 20% to $ 726 million, net profit - by 29%, to $ 381 ppm in addition, "Mechel" has shown the lowest in the industry profitability: 19% vs. 26-28% of competitors and 47% for the leader, NLMK.

And in 2006 Iorih decided to retire and sold his shares of "Mechel": about 15% of it is sold on the market, the remaining shares bought Zyuzin, who took this from the banks, it is estimated that nearly $ 1 billion by the end of the year Iorih came from the shareholders, with him gone and Jan Castro "Mechel." - they founded the Swiss fund Pala investments, is now busy investing in the mining sector. Talking to Forbes both refused.

It seemed that the market favored Zyuzin: all this time, the prices for the products of "Mechel" beat records. From January to May 2008, a ton of coking coal has risen almost threefold, to $ 300, for rolled steel prices reached a record $ 1,200 or more per ton. All "Mechel "from the beginning of 2008 to May increased by almost half, and since the IPO - more than 8 times.
Not that Zyuzin did not think how it will repay debts. In April 2008, "Mechel" has created a mining daughter "Mechel Mining", 20% of which was planned in the autumn of the same year to sell in the IPO for $ 1 billion. In June 2008, the company wanted to sell 55 million preferred shares (13.2% ofshare capital), to gain for them up to $ 3.3 billion.

But the growth of capitalization of "Mechel" has turned Zyuzin head: how says a former employee of Morgan Stanley - placement organizer "prefs" on the London Stock Exchange, the owner of "Mechel" has demanded unprecedented conditions. "Zyuzin demanded that we have placed the" preferred shares "at a premium to ordinary shares - this does not happen at all, but he insisted, and the arrangement did not take place And thank God -. It saved our reputation and eliminated the claims of investors ", - he says. The next day after the failed placement Putin urged to send to Zyuzin "doctor" that undermined the plans of "Mechel" for the sale of any securities.

After the "doctor"

Four days later, Putin struck a new blow. At a meeting of the presidium of the government, he again accused the company that it "sells products to foreign markets is several times cheaper" than in Russia, with its own offshore companies, thus leaving taxes and creating leads to higher prices in the domestic market deficiency. Investors have lost hope and panic andzbavlyalis of "Mechel" securities quotation on the NYSE tumbled 34% on the day. Compared with the May record "Mechel" I fell three times, to $ 8.1 billion.

All were at a loss, who is behind the attack on the company: due to the heavy nature and stubbornness Zyuzin amassed a lot of enemies, and in the pre-crisis years, metallurgists openlycomplained that "Mechel" refused to sign with them long-term contracts for coal, constantly improving price - the most friction in Zyuzin was with NLMK Vladimir Lisin, hardly having its coal assets. Lisin, in particular, I went to complain to Zyuzin Igor Sechin, said a source close to the current head of "Rosneft". It Sechin appointed deputy prime minister, initiated the verification Zyuzin, confirmed by a source in May 2008. But because of "Mechel" is not going to do the second Yukos, he said: "When I was a" doctor ", it was a certain glow and demonstrations, no one wanted to ruin Zyuzin. "

But it turned out that "Mechel" plunged into a severe crisis for a couple of months earlier than the rest. "When the whole thing started, financial institutions immediately suspended the sample of loans We had lines of credit, negotiation of financing, refinancing -. All at once fell," - says Senior Vice President of Finance of "Mechel" Stanislav Ploschenko. Officials have tried to minimize the effects of "doctor": Antimonopoly Service issued the company a relatively mild sentence in August 2008 - a fine of 5% of the proceeds from the sales of coal, or 790 million rubles, and lower prices for coal at a rate of only 15% (and would be up to 15% of annual turnover and a 30% decline in prices). A source close to Sechin, argues that his behavior the owner of "Mechel" has earned the sympathy of Deputy Prime Minister: contrary to custom Zyuzin agreed with everything, was accommodating and willing to cut prices. Zyuzin, a lifetime is not gave no interviews, communicating with Forbes refused.

Miraculous rescue

Recover from the July attacks "Mechel" did not have time: in September, the global crisis that hit the prices of metals and coal. From August to November 2008, prices of steel products decreased almost threefold, to $ 350-400 per toney of coking coal - more than twice. The company began to violate the covenants on loans, and banks have to reclassify its "long-term" debt in the "short". According to company statements, the end of 2008 out of a total debt of "Mechel" at $ 5.44 billion short-term amounted to $ 5.16 billion, of which loans of $ 4.2 billion have been violated covenants. In essence, this meant financial ruin "Mechel".

The main creditors of "Mechel" at the time were foreign banks: the company took from them a total of $ 3.5 billion ($ 2 billion - a syndicated loan "Southern Kuzbass" and $ 1.5 billion - a bridge loan to buy Oriel Resources) . Foreigners in the summer of 2008 in a state of near panic. And in vain: Zyuzin at the time managed to establish good relations with the state. "Until 2008, the company" Mechel "has not been overly active in the public field. When the trial began, the activities of the company has been brought to the attention and saw all that we are engaged in important projects for the country," - explains the general director of "Mechel" Yevgeny Mikhel.
The first fire was the anti-crisis measure, etc.gram VEB to refinance foreign loans provided by Russian companies. By the end of 2008, VEB has decided to allocate credits to 11 companies (applied for more than 30). "Mechel" was among the lucky ones, standing in a row with "Rosneft", Russian Railways, "Gazprom" and UC Rusal. In December, "Mechel" included in the list of organizations, so that he could count on the continued assistance of the state. VEB was ready to allocate "Mechel" $ 1.5 billion, so that the company has paid to foreigners on the bridge loan, maturing in March 2009. And "Mechel" was to the syndicate of banks about $ 2 billion, and non-payment of the first debt default drew the second. Suddenly Zyuzin via VEB did not take advantage, and he was the only one from the entire list, who refused to shoulder the state. The upset Western bankers who, after the approval of the loan VEB believed that their problems are solved.

Why did it happen so? According Ploschenko, the company did not want to part with cheap and long money its foreign creditors. VEB gave credit for the short yearod higher percentage (LIBOR + 8% compared to LIBOR + 2,9%, which was issued under the bridge), and in ensuring that credit would get not only of Oriel, and a controlling stake, "Mechel Mining ", Holding, which owns the" Yuzhny Kuzbass "Korshunov GOK and" Yakutugol ".

According Ploschenko, before the crisis, foreign creditors was a verbal agreement: if the "Mechel" will not be able to place "prefecture" and does not hold the IPO "Mechel Mining" Western banks refinance debt. During the crisis, no one wanted to remember it, but the leadership of "Mechel" strongly resembled. "Western banks said:" Take the money from the state and extinguish us. "We then considered the incorrect position: took a tug - do not say that a pound We did not want to spend public money on something that we thought the responsibility of commercial banks.", - Says Ploschenko. There are no obligations to "Mechel", he said, foreigners were not, but "by the rules" they had to refinance the loan. In the end, the same VTB to refinance in December, "Mechel", Giving him 15 billion rubles. Why Western banks do not do the same?

Part of the loans ($ 500 million) to Western banks, "Mechel" still put out, taking a three-year loan from Gazprombank, totaling $ 1 billion (the conditions were more favorable than VEB). This loan was issued in February 2009, negotiations began in March, and the western bankers already restructured the remaining debt in June - $ 3 billion Because of Gazprombank "Mechel" has left the country long cheap foreign money .. So Zyuzin again failed to demonstrate "national approach" to business and earn extra points.

Shock for bankers

Owner of "Mechel" while personally met with the bankers. "In an emergency, always negotiating level rises sharply, the banks no longer want to see the CFO, and want to see a shareholder", - explains Ploschenko. These negotiations have made a lasting impression on foreigners, one of them called the owner of "Mechel", "absolute inability to negotiate."
At the end of February 2009, in the midst of negotiations with crDitore Zyuzin stunned their statement about the upcoming purchase of "Mechel" of the American company Bluestone Soal the family of American businessman James Justice. The transaction is planned before the crisis, when investment banks assessed it at $ 4 billion. The bankers knew about the negotiations with the Justice Zyuzin, but could not assume that they will continue in a crisis, and even lead to a transaction. Statement Zyuzin was a shock.

"They could not pay its debts, they asked to extend loans and suddenly - broads - bought Bluestone It was the most bizarre move that someone has taken during the crisis This is an excellent illustration of Zyuzin attitude to risk..", - Says one of the participants in the process of restructuring debt, "Mechel".

Zyuzin reassured bankers that, instead of $ 4 billion to pay Justice only $ 435 million, of which $ 200 million had already prepaid and lose their no sense. The rest of the amount it will pay for preferred shares of "Mechel", which will release a special deal. The deal was closed in May, Justice received $ 435 million and "prefecture" of "Mechel" - about 60% of the issued securities, 40% of the company left at home. How were esteneny these shares during the transaction, "Mechel" does not disclose. Ploschenko said that the calculations relied on pre-crisis prices. Before the crisis, in July 2008, "Mechel" was trying toplace the "preferred shares" are priced at $ 50,5-60,5 per share. At the time of the sale of preferred shares of Bluestone "Mechel" never traded, and common cost $ 3-4. Before the crisis, the price reached $ 58.

Everything is allowed

The government continued to help Zyuzin: in August 2009, Putin instructed the ministries and state-owned banks to study the issue of redemption before the end of the year the company's bonds by 10 billion rubles and the allocation of guarantees for 30 billion rubles. Why such a favor? Proceeds from the "Mechel" placement promised to finance the development of the Elga coal deposit - an important infrastructure project, which for several years unsuccessfully tried to understand Railways and funded by the end of 2007 "Mechel" took over.

Barely saved from bankruptcy "Mechel" continued to occupy and buy assets. Zyuzin, for example, raised his hand to the mine "Raspadskaya", on toOra started working mine foreman in 1987, but failed to kill the proposal of Evraz, which bought it at the rate of about $ 2 billion.
In 2009 Zyuzin took to rescue the bankrupt metallurgical holding "Estar" Vadim Varshavsky, on which to "Mechel" the present moment spent about $ 1 billion. Now he's trying to compensate for at least some of these funds. "We relied on the fact that the crisis is over and recovery begins Many people have suffered, assets were cheap." - Is justified by Michel. Prices of steel and coal in the second half of 2009 began to grow again, and metallurgists relief breath.

And the summer of 2010, Putin has publicly apologized for Zyuzin "attack against the" Mechel "and thanked him for good behavior. Using this support," Mechel "has continued to invest in new projects, not paying attention to the growing debt. Only the construction of 321 km railway in Yakutia, the company spent $ 2.2 billion on arolling mill - $ 715 million by the end of 2011 the debt of "Mechel" has increased since the crisis began almost two times -. To $ 9.9 billion compared $ 5.4 billion at the end of 2008. With credit problems of state banks are still not there, but with commercial banks was more difficult to negotiate.

While best asset "ESTAR" - Donetsk electrometallurgy plant (DEMZ) belonged to a member of the "Alfa Group" A1 companies. After the crisis, Alpha Bank took him to repay the loan. Zyuzin really wanted to buy the plant, but was willing to pay almost half the size of what I wanted to get the "Alpha" (the full amount of the loan with interest and penalties).
The talks, according to Forbes, Zyuzin led not only to the bank's management, but also personally to Mikhail Fridman. After several meetings, the shareholders of "Alpha" lost faith in the possibility of an agreement and decided to leave the plant in the management of the A1. But the managers of Alfa Bank, whose task was to return the money, not to manage the assets, decided to fight independently Zyuzin. As a result, the former first deputy chairman of Alfa Bank, Vladimir Tatarchuk convinced Zyuzin DEMZ pay for $ 537 million (the amount of the loan plus interest, penalties had to forgive). On purchase Zyuzin was granted a loan which it will extinguishIt is for seven years in equal installments.

Tatarchuk acknowledges that negotiations were with great difficulty and often came close to failure. For example, when he suggested Zyuzin strengthen security for the loan, giving as collateral shares Korshunov GOK, businessman lost his temper and accused the banker almost a corporate raid. "Igor's just very kind to Korshunov GOK We have long fought for it at the time, it involves a lot of personal Sometimes the owners of some assets are treated as their children..", - Says Michael reaction Zyuzin.

In the end, Korshunov Mining Zyuzin had to lay on loans, although state-owned banks. "He trusts us," - laughing one gosbankirov. But this trust is not boundless: according to the "Mechel", none of the individual creditor bank has no pledged a controlling stake of the enterprise group. But overall loan laid controlling "Southern Kuzbass" and "Yakutugol" blocking stake in the holding company and Korshunov Mining Plant "Mechel Mining", 20% of the shares of CMP and a blocking Beloretsk Metallurgical Plant. On 1yun 2013 net debt of "Mechel" was $ 9.55 billion 58% of this amount, according to the company, accounted for Gazprombank, VTB and Sberbank, 22% -. Loans of foreigners on Russian commercial banks account for 4%. The remaining 16% - bonds, most of which belongs in the same state banks.

The second wave

"Mechel" broke the covenants set by bankers, he exhibited new, he broke them, too, and so again and again. But state-owned banks continue to give loans to companies and other banks are waiting patiently. At some point Zyuzin realized that the game has gone too far. "Rebound" coal and metals prices turned out to be very short, in the second half of 2011, they slowly came down.
"At the end of 2011, we realized that this is a second round of crisis, or it did not end at all", - says Yevgeny Mikhel. In May 2012, "Mechel" has adopted a new development strategy, first announced its intention to reduce the debt. In September, "Mechel" put up for sale 15 companies (currently sold about half). In November 2012 stopped unprofitable steel plants in Rouxynii and DEMZ in December - South Ural Nickel Plant. Now "Mechel" returns Donetsk plant is still the owner Vadim Varshavsky, and the company JP Morgan «is looking for opportunities to develop Bluestone» - from the sale to a strategic alliance.

"We get rid of those points, which absorbed our cash flow, without giving anything in return", - says Michael. & quot; Romanian assets we paid $ 70 [their buying "Mechel" has spent $ 216 million -. Forbes], many reacted sceptically to the deal, and we are only on this year saved in this $ 100 million. "

However, no restrictions apply when Zyuzin are folded good assets. So it was with the Vanino port, 73.3% of which the state put up for sale in late 2012. Total "Mechel" spent Vanino 20.5 billion rubles - 15.5 billion paid to the state, and another 5 billion - Oleg Deripaska, who bought out the remaining shares. And in early 2013, unexpectedly sold the 71% stake in a mysterious offshore companies whose owners did not disclose. There were rumors that it stands for itself Zyuzin, as well as people from the Railways, as for the purchase of "Mechel" of the sharesbut used funds NPF "Welfare". Vladimir Yakunin, in an interview with Forbes, said that among the buyers there is no leadership Railways: "Think about it, why should I or my top managers to get involved in this, despite the fact that currently there is a resolution, so we opened all the data on revenues and expenditures. " After this conversation, "Mechel" said in statements that one of the three owners of offshore Vanino has sold 25% stake in a subsidiary of Russian Railways. For the "Mechel" Vanino port is very important - it is through him, he plans to ship coal from Elga deposit, and this in the long term more than 20 million tons of coal per year.

With the "Mechel" coal began - to coal, it seems, he returns after all attempts to develop metallurgy. "We see that we have specialization -. In the corner, and the quality of our management in the coal is better than in the metallurgical assets In terms of volume and EBITDA profit we the coal company", - says Michael. About 60% EBITDA «Mechel" in early 2013 formed the mining segment, the revenue of which 71% is from coal sales. Because of another fall in prices for coking coal lethis is the capitalization of "Mechel" in August, close to a record low -. A $ 1.1 billion worth of coking coal prices in early September to grow by only 6.5%, and shares of "Mechel" for two weeks increased by 27%. Whether this growth will continue, it is not clear: the world's largest coking coal producer BHP Billiton considers the prospects of "complex", noting a drop in demand in many markets.

However, with metallurgy "Mechel" does not leave at least Chelyabinsk Iron and Steel and related plants remain exactly says Michel. "And everything else we could theoretically sell, but so far no such plans."

Sale of unprofitable assets, reduce costs, completion of major projects - all this has allowed "Mechel" in I quarter to become operationally profitable company (in 2012 the company completed a $ 898 million operating loss). On the net profit it does not go as well as the company's ability to pay its debts without help. In 2013, "Mechel" have to pay on loans $ 965 million - part of the money to ensure open lines of credit, part of their predstoit find somewhere. "We must either take, or to refinance, we are that, in general, all his life, this year is no different from the previous" - says quietly Ploschenko. But then it will be harder for the next few years will have a peak load on repayment of loans: $ 2.48 billion in 2014 and $ 2.3 billion in 2015. "The company is already in talks with banks in this regard", - says Ploschenko .

"This Russian man"

"Zyuzin'd have to resort to a share secured a partner, but he is not able to negotiate the diseased - said a source close to Igor Sechin -. It is a clear reference system - Putin, Sechin, deputy prime ministers, with the rest Zyuzin did not stand on ceremony, bykuet ". However, he believes that the owner of "Mechel" will continue to help with money. if the company is large, then it can not be bankrupt: "The bosses tough position Social stability is associated with the figure of the owner, no matter how he bothered.." Zyuzin while behaving with dignity, said a senior government source. "Zyuzin on sessions on state aid behavedry modest, I did not cry, do not whine, than favorably with the same Deripaska, who groaned loudly."

Bankers are hoping that the government will "Mechel". "Zyuzin is real Russian man who does not think so much about the external business attributes, how to make your P & L, but about the public interest If he thought differently, he would have been a different balance,." - Says the top manager of one of the state banks.

It is the favor of the authorities extends to the company and its owner? In any case, a loan of $ 300 million, which Zyuzin took the West against their shares, it is unlikely to refinance. The deeper the falling market, the more had to report to the shares in the software - is now on the loan laid Zyuzin owned 76% of the package (it is a little more than 50% of the ordinary shares of "Mechel"). If the market will continue to go down, will have to pay a pledge and his remaining 14% stake. At the beginning of September 2013 Zyuzin owned package of "Mechel" cost less than $ 1 billion.

Zyuzin have nothing but business - noxm, or aircraft, or works of art or luxury international real estate or expensive hobbies, says one western banker. Son Zyuzin Neryungri lives and works in the "Yakutugol". "Zyuzin - the poorest of the oligarch, his case never made it really rich." Saving "Mechel" Zyuzin saves all that he has, therefore, will fight desperately to end.