Research Notes

The bookbuilding range for the shares of Chelyabinsk Zinc Plant (ChZP, part of ChTPZ Group) to be placed in an offering on RTS will be $127.50-$155 per share. The IPO price range for the company's stocks on the London Stock Exchange will be $12.75-15.50 per Global Depositary Receipt (GDR). The metal maker's market cap is projected at $650-790 mln (not counting the scheduled issuance of additional share for 6.4% of the charter capital). One share will equal 10 GDRs. As expected, the offering will be finalized on November 7, 2006.

ChZP's selling shareholder is NF Holdings B.V. (which owns 87.99% of the plant), whose beneficial owners are Vadim Shvetsov (Severstal-AVto CEO), Andrey Komarov (representative of the Legislative Chamber of the Chelyabinsk region in the Federation Council) and Alexander Fedorov (board chairman at ChTPZ).

The plan is to float 1,789,698 shares of ChZP, i.e. 33% of the increased charter capital, in an offering. The plant's shareholder is to offer investors up to 1,464,525 shares. In addition, after the IPO ChZP will also offer up to 325,173 stocks (the above additional share issue accounts for 6.4% of the charter capital) to its shareholders (with August 30 as the record date) who are entitled to exercise the right of first refusal. This equity position also includes 286,120 stocks of the shareholder which were offered to the company's management. All in all, ChZP could net around $30 mln, including IPO costs.

ChZP intends to use IPO proceeds for business expansion, more precisely, for raising zinc output 25% y-o-y to 200,000 tons by 2010.

As a result of the IPO ChZP's free float could top 45%. The arrival of an issuer with such a heavy free float opens up opportunities for entering the non-ferrous metal segment, which until now has been represented to a large extent only by NorNickel, all the more since quite a favorable environment has shaped up on the zinc market over the past several months. In addition, zinc prices recently set a new record, topping the $4,000/t mark, or twice as high as metal prices at the beginning of the year. Record high metal prices should help ChZP exhibit record financials this year.

According to our valuation based on market multiples, the approximate market cap of ChZP is $780 mln to $860 mln (including the additional share issue) or $144-$159 per share. In our view, investors will be well advised to pick up the metal maker's stocks in the offering.

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Nataly Kocheshkova

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