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MMK Ahead in Race for Pakistan Steel
Magnitogorsk Iron & Steel Works, or MMK, is set to win an auction for Pakistan's largest steel factory after placing the highest bid with two foreign partners Friday. The victory would mark the Russian steelmaker's first foray into foreign markets.
MMK formed a consortium with Saudi Arabia's Al-Tuwairqi Group and Pakistan's Arif Habib Securities to bid on equal terms $361 million for 75 percent in Pakistan Steel Mills, the only integrated steelmaker in the South Asian country.
MMK's consortium outbid by $8 million an alliance of Ukraine's Industrial Union of Donbass and its three Middle Eastern partners and is widely expected to win the auction. The Pakistani government will officially announce the winner this month.
The move by MMK comes as cash-rich Russian steelmakers are increasingly looking to acquire production units abroad, hamstrung by low internal demand and desperate to expand into the lucrative but restrictive European and Asian markets.
"We think that in forming an alliance with companies that have experience operating in this region and are well acquainted with its specifics, we will be able to expand our company more effectively," MMK board chairman and major shareholder Viktor Rashnikov said Friday in a statement.
MMK's success could prove particularly profitable as Karachi-based Pakistan Steel Mills enjoys a strong position in the Asian country, where demand has traditionally exceeded supply. Its annual production is 1.1 million tons.
MMK's deal would mark its first acquisition of a foreign asset, as the company seeks greater international presence not only through increased sales and acquisitions but also through recent moves to nominate high-profile foreign executives to its board.
In summer 2005, Rashnikov indicated that MMK would seek a foreign listing in a couple of years, following the lead of domestic rivals Evraz and Novolipetsk Steel, both of which floated in London last year.
"Any foreign buy is important for a Russian steel company because there has not been many of them, and the companies know they cannot grow much further domestically," said Alexander Pukhayev, an analyst with Deutsche UFG.
Arif Habib Securities is part of a Pakistani group that specializes in finances, with its only industrial assets being one fertilizer plant and several cement factories. Al-Tuwairqi has mid-size steel operations in Damman, Saudi Arabia, though the company pledged in 2004 to invest $100 million in a steel billet plant near Karachi.
Aton analyst Timothy McCutcheon saw the consortium as mainly a political tactic, while analysts at Standard & Poor's suggested MMK would eventually buy out its partners in the steel mill.
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