Severstal Plans $1 Billion Dividend on U.S. Asset Sales

OAO Severstal, Russian billionaire Alexey Mordashov’s steelmaker, may pay about $1 billion in special dividends after selling U.S. assets earlier this month. The stock rose in Moscow and London trading.

Severstal, which disclosed the dividend plan in a quarterly earnings report today, last week agreed to sell its U.S. steel mills for a combined $2.33 billion. The Russian steelmaker intends to return “approximately $1 billion to shareholders via special dividend after closing these transactions,” it said.

Severstal is exiting a U.S. steel industry dogged by excess capacity and depressed prices since the financial crisis. While the process of selling the U.S. assets started last year, the deals were reached amid heightened tensions between America and Russia over Ukraine, where pro-Russian separatists continue to control key cities.

The steelmaker’s shares rose as much as 3.5 percent in Moscow to 331.3 rubles, the highest intraday level since March last year. The London-traded securities climbed as much as 4.1 percent to $9.305, the highest since January.

Mordashov and Severstal haven’t been targeted by U.S. or European Union economic sanctions, and the company started to look for buyers for its U.S. assets in 2013, before the conflict in Ukraine developed. While Severstal hasn’t been directly hurt by sanctions, the tensions aren’t improving the investment climate, Mordashov, who is chief executive officer, said on a conference call with reporters.

Dividend Policy

Cherepovets-based Severstal said today it will change its dividend policy to pay out 50 percent of net income, compared with 25 percent now, provided net debt is less than earnings before interest, taxes, depreciation and amortization.

Severstal will probably begin to pay higher dividends in 2015, Chief Financial Officer Alexey Kulichenko said on the call. Severstal plans to use the rest of the proceeds from the sale of the U.S. assets to cut debt, which may include repurchasing bonds, Mordashov said.

A move by U.S. steelmakers to have domestic regulators cancel a steel-trading agreement with Russia wouldn’t benefit anyone, Mordashov said.

The Severstal board recommended paying a first-half dividend of 2.14 rubles. It proposed transferring CEO powers next year to Severstal Management Co., which is headed by Mordashov.

Severstal posted a $661 million loss in the second quarter after incurring a $1.07 billion non-cash loss selling the U.S. assets, today’s earnings report shows. Sales rose 8 percent from the previous three months to $3.25 billion, while Ebitda advanced 14 percent to $606 million.

Steel Dynamics Inc. has agreed to buy Severstal Columbus in Mississippi and AK Steel Corp. will acquire Severstal Dearborn in Michigan, the Russian company has said. It also agreed to sell its U.S. unit PBS Coals.

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