Home
New Posts
Popular
Kenneth Rapoza, Contributor
I cover business and investing in emerging markets. FULL BIO
INVESTING 3/14/2015 @ 7:46PM |52,298 views
Russian Billionaire Oligarch Faces Bankruptcy
Share 7 Comments
Russian mining giant Mechel is going bye-bye. And that’s going to hurt one very wealthy oligarch.
Economic Minister Alexei Ulyukayev said Friday that the debt-ridden Mechel’s bankruptcy was now “inevitable”. Mechel is Russia’s leading coal producer.
Ulyukayev told reporters in Egypt that attempts to restructure Mechel’s $6 billion debt had failed. He said Mechel was unable to find a white-knight to buy the company. “Unfortunately, the recent developments clearly show that no other options but bankruptcy are left,” Ulyukayev said.
Mechel shares have collapsed since the end of the commodity super cycle in 2010. Shares of the company’s American Depositary Receipts are down 94% in the last five years. Last October, the NYSE told the company that it will be delisted if the stock trades under $1 a share for a 30 day period. The stock is currently $1.54 with fairly high volume and was removed from the warning list on March 2.
But like most Russian securities, it’s currently being used as a gambling chip by hedgies and day traders. Some short-termers have made a lot of money off this coal miner. It’s up over 125% year-to-date and continues to trade over its 200 day moving average.
Russia’s state owned VTB Bank and Sberbank will be left holding the bag for this one should it go belly up.
Mechel was born 12 years ago, late in the commodity boom. FORBES billionaire Igor Vladimirovich Zyuzin is the Russian oligarch behind the company, owning over half of Mechel’s shares. Zyuzin has mining operations in 11 Russian states, and while coal is his biggest source of wealth, he also sells iron ore and runs some coal-fired power plants. Mechel is home to roughly 80,000 employees, making it an important asset for the government to try and save despite Zyuzin not being one of Vladimir Putin’s preferred businessmen.
Mechel can be delisted if it trades under $1 a share for 30 days. Day traders and hedge funds are having fun keeping the stock alive. Mechel is up triple digits in the last three months.
Russia’s economy is going through tough times. Western sanctions due to Russian involvement in the Ukraine separatist movement, coupled with low oil prices have led economists to forecast a contraction in Russian GDP this year.
Mechel might still find a buyer. The problem is political risk. Sanctions will make doing business in Russia difficult for Western firms to find it attractive.
In the U.S., Mechel recently sold its Mechel Bluestone, Inc. for a mere $5 million to a small, coal mining family business from West Virginia.
