Page 120 - RusRPTApr19

Company Rusal Plc a long-term Issuer Default Rating (IDR) of 'BB-', with a stable outlook, the agency said on March 25. In February, the US Treasury Department Office of Foreign Assets Control (OFAC) removed Rusal and other assets of Russian billionaire and Kremlin insider Oleg Deripaska from the US Specially Designated Nationals And Blocked Persons List (SDN List). BCS Global Market wrote on March 26 that it previously recommended increasing positions in RUALRU bonds, expecting spreads to tighten after credit rating restoration. The analysts saw the rating at “BB-” level, and now see the current yield decline potential at no more than 30bp as almost all upside has been realised. "Ratings from S&P or Moody’s (or both) will be restored shortly,” BCS GM analysts believe. "Rusal successfully managed its operations under the US sanctions with limited impact," Fitch commented on the rating action, noting that "due to several extensions granted to the company's grace period by the OFAC, Rusal did not bear the full impact of the sanctions." The company saw a 7% decrease in aluminium shipments to 3.7mn tonnes in 2018, despite marginally higher production, which was offset by 7% higher average realised aluminium prices.
Russian steel pipe maker TMK will sell 100% in its US subsidiary IPSCO Tubulars for $1.2bn to Italian Tenaris, the company said on March 22 in a London Stock Exchange filing. The deal will be held on cash free, debt-free basis and will include $270mn of working capital. Shares of TMK jumped by 11% on the announcement, with company's capitalisation reaching $766mn. TMK has been trying to sell IPSCO since 2017 but had to call off an IPO repeatedly due to sanction pressure. "The announced deal is fundamentally positive for the stock," BCS Global Markets said on March 22. BSC GM estimates that the upside from this deal is at least 70% (in 2018, IPSCO had $163mn of Ebitda, so the deal values IPSCO at 7.4x Estimated Value/Ebitda vs TMK’s M2M 4.8x). Previously TMK planned to raise $465mn-535mn from the IPSCO of TMK, and now raised double of $939mn (minus the $270mn working capital), although Tenaris got the US division with a discount. BCS GM estimates that TMK’s net debt of about $2.4bn and interest payments of $250mn may fall by about 50% after the deal, if the company uses the cash raised to repay debt. Analysts surveyed by Vedomosti daily estimated net debt to Ebitda dropping from 3.7x to 2.9x. "The only risk we see – if the management decides to spend cash not for debt repayments, but for M&A or something different. But, we see very low risk that this may happen," Oleg Petropavlovsky of BCS GM argues. In the meantime TMK could become the strongest dividend story in M&M, as company’s free cash flow (after interest) is estimated at $150mn-200mn after the deal, making a free cash flow yield of 20-25% to market capitalization.
Russian metals maker Evraz will take 1.8% of the shares sold by structures of its main shareholders Roman Abramovich, Alexander Abramov, Alexander Frolov and Evgency Shvidler, the company said on March 18. The stake in Evraz is valued at about $212.5mn based on a market capitalisation of $11.8bn on the London Stock Exchange. Almost half of the stake will be sold through an accelerated bookbuilding by Greenleas International Holdings of Abramovich for around $95.6mn, a third by Abiglaze Limited Abramov, and the rest by Frolov and Shvidler. Earlier this month, Abramovich and Abramov held an overnight accelerated book-build for a secondary public offering (SPO) of a roughly 1.7% stake in metals major Norilsk Nickel with about a 12% discount to the market.
Sberbank CIB saw the Norilsk Nickel the deal as "opportunistic, price-driven and reflecting Abramovich's earlier intention to monetize his investment." Previous reports also indicated that Abramovich is restructuring his major
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