Standard & Poor's said it expects the proceeds to be used for future merger and acquisition activity, but the size of any potential acquisition, as well as its strategic fit into Severstal's operations and any additional financial requirements related to such an acquisition, remain unclear at this stage.
Severstal announced earlier Wednesday the pricing of its Global Offering of ordinary shares and Global Depositary Receipts (GDRs), with each GDR representing one ordinary share.
The Global Offering has been priced at the higher end of the announced price range, at $12.50 per share and GDR, implying a market capitalization of Severstal of approximately $12.70 billion, the company said in a statement.
"A total of 85 million existing ordinary shares, including ordinary shares in the form of GDRs, were allocated to international institutional investors, including to qualified institutional buyers in the United States under Rule 144A, representing approximately 9.1% of Severstal's outstanding shares (excluding the over-allotment option of up to 12.75 million GDRs) and corresponding to a total offer size of approximately US$1.063billion. The shares are being offered by Frontdeal Ltd., an entity under the control of Severstal's controlling shareholder," the statement said.
About 90% of Severstal's stock belongs to Alexei Mordashov through several companies, including Frontdeal Limited. Mordashov intends to sell a part of his holding in Severstal during the global offering to raise the company's free float to 25%, the statement said.
"Severstal intends to use the gross proceeds of this capital increase to continue improving the quality of its production facilities, and to improve operating efficiencies throughout its global operating platform, as well as to take advantage of potential opportunities to expand its core business, in line with its corporate strategy, including the funding of potential acquisitions of assets and participation in joint ventures," the statement said.
The Federal Service for Financial Markets has authorized the placement abroad of 253.9 million common shares of Severstal, or 24.99% of the company's charter capital, but the agency said the maximum authorized stake to be floated abroad could be capped at 27.28% if the company fails to place in full its additional issue, registered October 17.
Citigroup, Deutsche Bank and UBS Investment Bank are joint global coordinators and joint bookrunners for the global offering.
Conditional dealings start on the London Stock Exchange Wednesday, with admission to the Official List of the UK Listing Authority is expected November 14. The GDRs will be listed on the London Stock Exchange under the symbol "SVST".
"Severstal intends to use the proceeds of the Capital Increase to continue improving the quality of its production facilities and improve operating efficiencies throughout its global operating platform, and to take advantage of potential opportunities to expand its core business in line with its corporate strategy, including the funding of the potential acquisitions of assets and participation in joint ventures," the statement said.
Severstal sought a merger with the world's number-two steelmaker, Arcelor, but the deal, signed May 26, fell through when it was rejected by Arcelor shareholders June 30, to clear the way for a takeover of the Luxembourg-based company by the world's largest steel company, Mittal Steel. Arcelor paid Severstal 140 million euros (about $180 million) in compensation.
Mordashov said his company plans a future merger with a big partner in the sector, but only if it is beneficial for shareholders.
Severstal said in August its revenues, calculated to Russian Accounting Standards, fell 27.4% in the first six months of 2006, year-on-year, to 72 billion rubles ($2.7 billion). The company's gross profit fell 24.5% in the reporting period, to 22.1 billion rubles ($810 million) and pre-tax profit declined 25.5%, to 18.6 billion rubles ($688 million).
