The media reported on November 29 that Trubnaya Metallurgicheskaya Kompaniya (TMK, RTS: TRMK) does not rule out a secondary public offering (SPO) to raise the proceeds for M&As. The pipe maker's Deputy CEO for Strategy said so at a press conference in Yekaterinburg. He also noted that TMK intends to improve the structure of its credit portfolio through a Eurobond issue in 2008.
According to management, there are no clear-cut plans on the merger as of now. However, this could be the case, taking into account globalization trends. Earlier Vladimir Smatovich said that TMK's core beneficiary Dmitry Pumpyansky is poised to reduce his stake in the company to 51% in the event of a merger with a large player. He went on to say that TMK eyes 2-3 large public pipe makers as a takeover target or a merger option, without specifying their names. The company's market cap amounted to $8.60 bln as of November 29. Therefore, in the event of placement of another 26% of its shares (the pipe maker's free float currently stands at 23%), TMK will be able to raise about $2.24 bln, which will enable the company to become more aggressive on the M&A market.
As regard the placement price and the timing of the Eurobond issue with a view to refinance the current debt, they have yet to be determined and will depend on current market conditions. "We believe that placement of Eurobonds will improve the quality of our credit portfolio", Shmatovich said Thursday.
In our opinion, along with the current debt refinancing, the Eurobond issue could target raising funds both for revamping production facilities and new M&As. We have no recommendation on TMK shares. However, the stock looks slightly overvalued on industry average multiples.
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