MMK buy out Turkish joint venture stake for $485 million

MMK has signed an agreement to purchase 50% minus one share in MMK-Atakas from the Atakas group for $485 million.

MMK-Atakas is the corporate vehicle constructing a $2.1-billion plantmetals plant in Turkey, with a capacity of 2.6 million tons per year.  Construction began in March 2008. MMK board chairman, Viktor Rashnikov, says that MMK’s complete takeover of the project will be completed by November 1 once all clearances have been received.

"Consolidation of 100% control in MMK-Atakas by MMK is part of the MMK strategy aimed at establishing the MMK Group presence on the key and rapidly growing markets in Russia and Middle East, primarily in Turkey,"

Currently the Iskenderun complex operates an electric arc furnace facility, a cold-rolling facility, a hot-dip galvanizing unit and a color coating line, along with two service centres in Iskenderun and Istanbul. It also includes a sea port which significantly expands the plant's export capacity and facilitates supplies of raw materials for steel production.  MMK-Atakas will produce over 800,000 tonnes of steel products in 2011 and over 2 million tonnes in 2012.

Olga Okuneva, metals analyst at Deutsche Bank, says the joint venture objective has been reached, providing the joint venture partners scope to further strategic ends.

 “MMK is unique insofar as a Russian steel company has initiated flat roll production in Turkey to cover a market deficit. Artakas is one of the main metals market producers, focused primary on rolled steel. The price is reasonable and fair. The deal may be even more lucrative for Artakas assuming that Artakas invested with land facilities which could have been purchased on a low price before the joint venture partnership. The total investment into the project was $2.1 billion with 80% invested through a bank loan. MMK has played a role of major project developer and major stake holder. The Turkish side was not interested in a continuous development and an entire stake control. The project has reached an important stage and almost all finalizations has been made, thus, it has been anticipated for a company to buy out the rest of the stake kept by Artaks. The deal will provide MMK with foreign market access and increase Turkish market production output of flat roll steel”

Airat Khalikov, metals analyst at Veles Capital, said that the MMK deal is a success for the company and will increase shareholder value

 “In terms of production capacity, the MMK is currently estimated at over $0.86 billion for 1 million tonnes of steelmaking capacity. MMK-Atakas, given the cost of redemption and planned investment is estimated at $0.77 billion for 1 million tons of capacity.  Thus, in this case we can say that the MMK will receive manufacturing facilities in Turkey with 10% discount to current market assessment of the MMK.”