RUXX Alert: Conflict with minority shareholders may further weaken Mechel

New York – Mounting problems at major Russian mining and steelmaking company Mechel (NYSE:MTL) may trigger yet another dip in the company’s stock. Following Russian authorities’ recent announcement that Mechel may lose its Yakutugol coal mining license – one of its most substantial assets – over serious violations, and a resulting 5% stock price decline, Mechel has now run into more trouble. New accusations against the company have to do with its disregard for minority shareholders’ rights.

Swiss Bank Julius Baer and Co Ltd asked a court to stop an additional stock issue by Tomusinsky Mine, a Mechel coal mining subsidiary. Julius Baer claims that the “new stock issue may destroy substantial value for minority shareholders.” The Kemerovo Regional Commercial Court sided with the minority shareholder’s claim, blocking the new issue that could, according to Julius Baer, dilute their holding in Mechel and destroy shareholder value.

Michael Thompson, an analyst for RUXX Index that includes Mechel and other Russian stocks listed overseas, believes that the new conflict around Mechel may hurt its stock price: “Western investors are mostly concerned about two kinds of risks associated with investing in Russia: political and legal. With Mechel, both kinds of risk are very high. The company clearly has a troubled relationship with the Russian authorities. Several years ago, the company lost US$ 5bn of its market capitalization within hours of  Mechel CEO Igor Zyuzin getting publicly scolded by then-Russian Prime Minister Vladimir Putin. Conflict with minority shareholders is a classic legal risk likely to make the company less appealing to investors.”

If Mechel’s problems continue, and the stock remains volatile, the RUXX Committee will look into deleting Mechel from RUXX Index.

“After troubles with the minority shareholder started, Mechel postponed indefinitely a RUB 15bn bond issue. The company will find it very hard to raise financing unless it can reach a settlement with its Western minority shareholders,” Thompson also said. 

Stock In Focus: MTL

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