Emerging Markets : Steel Makers Plan Merger To Head Off Mittal



Mordashov: Vaults to forefront of industry

Steel maker Arcelor, under attack from Mittal, in late May announced a $16.6 billion merger with Russias Severstal, a deal that would create the worlds largest steel maker. The transaction, which was blessed by Russian president Vladimir Putin, would vault Severstal head Alexey Mordashov to the forefront of the global steel industry, with a 32% stake in the combined entity, and would diminish the chances of a Mittal takeover. Shortly after that announcement, Russian coal and steel producer Evraz revealed that it might sell a large stake to Russian tycoonand Chelsea Football Club ownerRoman Abramovich as part of what appears to be the beginning of steel industry consolidation in Russia.

Russia remains on the cusp of World Trade Organization membership, with the United States the only country with which talks have not yet been concluded. A key sticking point is Russian reluctance to allow foreign banks to open branches in Russia, instead mandating that foreign banks only be allowed to open subsidiaries that are regulated by the central bank of Russia, rather than foreign regulations.

Russian state oil company Rosneft announced that its proven reserves of oil and natural gas rose 18% in 2005, making it the worlds fourth-largest energy company. The companys long-anticipated IPO, which is expected to raise as much as $10 billion, is scheduled to go to market in mid-July. Another oil company, Marathon Oil, sold its oil exploration and production operations in western Siberia to Lukoil for $787 million, nearly tripling its initial investment in three years.

Investors appetite for Russian equities appears undimmed. Russias fourth-largest television network, CTC Media, raised nearly $350 million in an IPO on Nasdaq. The deal went out at the lower end of a sharply reduced price range, but the share price moved up to the middle of the original price range on the first day of trading.

Kim Iskyan