Mechel Signs Agreement to Sell Donetsk Electrometallurgical Plant
08/20/2013 - Mechel OAO has signed an agreement for the disposal of the Donetsk Electrometallurgical Plant AO in Ukraine.
Mechel signed the agreement with businessman Vadim Varshavsky for the disposal of 100% shares of Daveze Limited, which in its turn owns 100% shares of Donetsk Electrometallurgical Plant, for a nominal sum of € 2,000.
The buyer also assumes the obligation to ensure repayment of DEMZ AO's debt to Mechel Group for a sum of up to US$ 81 million depending on the time of the repayment. Operational management of the plant will be transferred to Vadim Varshavsky shortly. The deal is due to be closed in late 2013.
"In the current macroeconomic situation we see no further perspective for the plant's development within Mechel Group, as we do not foresee significant improvement in the market where the plant operates over the next few years,” commented Mechel CEO Evgeny Mikhel. “This deal also helps decrease country risks for Mechel due to the specifics of doing business in Ukraine, which are often weighed down with non-market factors. Moreover, due to high scrap prices, which are partly due to several local producers' monopoly status, production at the plant has become unprofitable and was halted in November 2012.
"In this year's first quarter alone DEMZ's net loss amounted to US$ 16 million by US GAAP, with US$ 50 million loss in 2012.
"Disposal of unprofitable assets will enable us to significantly improve our operational cash flows and focus on our priority businesses — mining and high value-added steel products," Mikhel said.
Mechel is an international mining and steel company which employs over 80,000 people. Its products are marketed in Europe, Asia, North and South America, Africa. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, heat and electric power. All of its enterprises work in a single production chain, from raw materials to high value-added products.
