Russian steel giant to float on UK exchange

LONDON - The Russian steel group Novolipetsk Steel will this week launch the biggest flotation on the London Stock Exchange for five years.

Novolipetsk is set to be valued at about £6b ($15b) when it floats next month.

The deal will propel Vladimir Lisin, a little-known Russian metals tycoon who started out as a welder in a coal mine, into the leagues of Russia's super-rich.

Mr Lisin's 90 per cent stake in Novolipetsk would be worth about £5.4b ($13.5b) when the company lists.

UBS and Merrill Lynch have been appointed to handle the float.

Advisers at the banks have already been courting potential investors.

A series of pre-marketing meetings were held with City institutions last week and the company is now confident it can push ahead with a secondary listing on the London market.

Novolipetsk began exploring the possibility of a London float earlier this year when its financial regulator in Russia gave the company permission to list up to 25 per cent of its equity overseas.

It is anticipated that Novolipetsk will float about 10 per cent of its shares in the form of global depository receipts.

This would raise about £600m, with the overwhelming bulk of the proceeds going straight to Mr Lisin.

The final size of the offering has not been decided.

No new funds are being raised through the listing, as the company is already cash-rich.

It had US$1.7b ($2.5b) on its balance sheet at the end of 2004 and has funded an extensive modernisation programme of its major steel production facility through existing resources.

Mr Lisin is using the London float to realise some of his stake in the company, which he has been in control of since 2000.

He began his career as a welder in 1975, before joining the steel industry.

In 1991, he became part of a group of metals traders called the Trans-World Group, which went on to dominate the Russian aluminium and steel industries.

In 2000, the group broke up, leaving Mr Lisin with the majority stake in the Novolipetsk steel mill as his share.

He was also keen to get a London listing to give the company more flexibility to pursue acquisitions.

The company has already been active in a number of steel asset auctions, missing out on Erdemir, the Turkish steel group, and on Kryvorizhstal, the Ukrainian steel maker, which was bought by Lakshmi Mittal, Britain's richest man, for US$4.8b.

Novolipetsk is Russia's fourth-largest steel maker and one of its most profitable.

In the first half of the year, it made pre-tax profits of US$1.3bn on a 20 per cent leap in turnover of US$2.38bn.

It owns 90 per cent of its iron ore and has just bought a large coking coal deposit.

It also owns its own trains to transport steel and has a controlling stake in the Black Sea port of Tuapse.

Novolipetsk is listed in Moscow, although just under 5 per cent of its equity is on the market.

The Novolipetsk listing comes on the back of a strong world steel market over the past two years, driven mainly by China's huge demand for steel products.

The float is the largest in London since the height of the dot.com boom.

A report by Citigroup published last week said the growth in oil and mining stocks was similar to the technology boom of 1999/2000.

Analysts at the bank, however, believe global demand will remain robust.

Novolipetsk's move follows in the footsteps of a number of Russian companies choosing London as their overseas stock market of choice.

In the past year, Russian companies have raised more than £2.5bn in Britain.

One of the largest was Sistema, the banking-to-telecoms conglomerate, which raised £1.3bn.

Evraz, a steel-industry rival to Novolipetsk, Pyaterochka, the retail group, and Novatek, the gas business, have all listed in the UK in the past year.

- INDEPENDENT