Russian Steel Pipe Maker TMK Considers Asset, Share Sale To Cut Debt

20 August 2016

TMK, Russia's largest maker of steel pipes for the oil and gas industry, is considering a secondary share issue and asset sale to cut debt, it said on Friday.

TMK, hit by weak pipe sales in the United States, borrowed heavily to expand abroad about eight years ago and now has assets in Russia, U.S., Canada, Romania, Oman and Kazakhstan.

"We may consider selling assets, except flagship Russian ones, but are planning to remain a global company," Vladimir Shmatovich, Vice President for Strategy and Business Development, told Reuters.

Some of the company's U.S. plants are idle and it could sell small- or mid-sized assets although no deal was imminent, Shmatovich said.

Oil and gas producers around the world have cut spending as energy prices remain weak amid supply gluts and poor demand.

TMK, controlled by businessman Dmitry Pumpyansky, has set a target of net debt to earnings before interest, taxation, depreciation and amortisation (EBITDA) of 2.5 times. At the end of June, the ratio was at 4.6 times.

Shmatovich said the company needed to refinance $450 million of debt this year, and was considering selling more shares to its creditors.

In December, TMK signed a deal with state-controlled bank VTB under which the lender got the right to buy around 10 billion roubles ($157 million) of TMK shares to help it repay loans. TMK has already sold 44 million shares, mostly to VTB.

"In future, we do not rule out such deals although just now there are no transactions in the works. But we have support from our shareholder and the board of directors," Shmatovich said.

The company's net debt was flat as of June 30 compared with the end of 2015, at $2.5 billion.

Its second-quarter net profit rose 21 percent from a year ago to $57 million, while revenue fell 27 percent to $853 million due to a negative effect of currency translation and weaker sales at the U.S. division. EBITDA slid to $143 million from $172 million.

TMK sees lower sales in Russia in the current quarter due to seasonally weaker demand and scheduled maintenance, but expects an improvement in demand in the fourth quarter. TMK also plans to increase supplies to Iran, its new market, from several dozens of thousands tonnes in 2016.

It also said it expected an improved overall EBITDA performance in the second half of 2016 and that its full-year EBITDA margin would remain flat compared with 2015.


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