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Share Placements Marred by Market Volatility

Mechel raised less than expected in an additional share placement, and Strikeforce Mining & Resources said it would delay its IPO in Hong Kong, as Russian firms are finding their issuance plans marred by global market volatility.

Coking coal and steel producer Mechel raised only $229 million on Friday in a delayed share placement, less than half as much as hoped.

The Justice family shareholders sold 15.25 million preferred shares — 39 percent less than originally planned — in the placement, which had been postponed by a day following the steep plunge on U.S. bourses on Thursday when a suspected trading glitch and fears of a new credit crunch in Europe threw markets into disarray.

The sale was for 30.50 million preferred American Depository Shares and was priced at $7.50 per preferred ADS, the company said. That is well below the initial price range of $10.50 to $13.80.

"Nervous investors started to cancel their orders, and they [Mechel] had to react," a fund manager said. "They reduced the size of the placement."

At the initial size and price guidance, Mechel's placement had been expected to raise $524 million to $689 million for the Justice family shareholders.

Mechel acquired West Virginia, U.S.-based Bluestone Coal from the Justice family last April for $436 million and 83.3 million preferred shares. The Justice family cannot sell the shares until they are listed on a stock exchange.

Strikeforce, a molybdenum producer controlled by billionaire Oleg Deripaska, will delay taking orders for its IPO in Hong Kong until equity markets have stabilized, a person with knowledge of the decision said May 8.

Declines by United Company RusAl and other firms recently holding initial offerings in Hong Kong may deter more companies from listing, according to Louis Capital Markets.

“Who at the moment is going to dare to have an IPO in Hong Kong?” said Francis Lun, general manager at Fulbright Securities in Hong Kong. “Companies want to raise money selling shares, but the market is so volatile there simply isn’t the appetite from institutional investors.”

RusAl, which is also controlled by Deripaska and completed the first initial offering by a Russian company in Hong Kong, has retreated 26 percent since its January listing.

The decision to delay Strikeforce’s sale while the market is weak isn’t surprising given RusAl’s drop, according to Ben Collett, head of equities at Louis Capital Markets.

“If I were advising companies on an IPO in Hong Kong at the moment, I’d say leave it three to six months,” he said. “You want to hold an IPO when the market is rising. The appetite for risk has reduced dramatically.” Strikeforce, or SMR, had planned to start taking orders from institutions as early as this week, and the company was seeking to raise as much as $200 million, a person with knowledge of the plan said May 3.

SMR produces more than 6 percent of the global supply of ferro-molybdenum, which is used to make stainless steel. The company also owns a stake in Buka Mining, which holds a development license for gold, silver and copper deposits in Mongolia, according to its web site.

On Monday, a source said En+ Power, also controlled by Deripaska, had appointed two banks to help on its up to $1.5 billion initial public share offering in Hong Kong.

En+ Power had hired BOC International and Deutsche Bank to finalize plans for its initial public offering in Hong Kong, aiming to raise $1 billion to $1.5 billion in the fourth quarter, the sources said.

(Reuters, Bloomberg)

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