DIU yields steel to Privat group

In a move that could increase Privatbank group's chances of becoming a major Ukrainian steel producer, Donbas Industrial Union has sold a stake in a large steel plant to shareholders affiliated with Privatbank.

The beneficiary of the 42.46 percent share in the Petrovsky-Dniprovsky Metallurgical Plant is Privat-Intertrading, an affiliate of Dnipropetrovsk’s Privatbank. Other firms affiliated with Privatbank also own shares in the plant.

“After DIU acquired the 42.26 percent share in 2003 from the state, two strong groups of influence clashed at the plant: Privat-Intertrading and DIU,” reads a joint statement issued June 23. The statement also said that Privat-Intertrading approached DIU in May 2004 with an offer to buy the 42.26 percent share. The sale agreement was signed June 23. Both sides agreed that the sale price would not be disclosed. DIU paid Hr 65.82 ($10 million) for the share last December through a privatization tender.

Stepan Selivyorstov, an analyst at Kyiv-based steel industry consultancy Prometal, said the Petrovsky mill is an important acquisition for the Privatbank group, which owns mainly companies that produce raw materials needed in steel production: not steel mills.

“This plant was needed more by the Privatbank group than by DIU [which already owns several steel mills]. Outside of this mill, the Privatbank group only has the small Kominternu Metallurgical Pipe Plant,” Selivyorstov said.

Business structures affiliated with Privatbank also control two ferro-alloy plants, three coke plants and four ore production companies. Coke and ore are raw materials essential in the production of steel.

DIU controls several steel mills, all larger than the Petrovsky mill, including Ukraine’s Dzerzhinsky Metallurgical Plant, the Alchevsk Steel Mill and the Hungarian Dunaferr.

During the last year, several Ukrainian industrial groups have been competing for control of Ukraine’s state-owned metallurgical assets, and the battle between DIU and Privatbank group over the Petrovsky mill is evidence that the stakes are high in the country’s metallurgical industry.

“It was clear from the beginning that only one owner would remain. The real question is why DIU bought this plant in the first place,” Selivyorstov said.

The mill has been cooperating with the suppliers of raw materials, like coke plants and ore mining enterprises, affiliated with the Privatbank group for years, he added.

“Privatbank already controlled a big share in the plant – nearly half of the shares, or a controlling stake,” Selivyorstov said. Additionally, the Petrovsky plant has been managed by companies affiliated with Privatbank since the late 1990s.

DIU likely bought the mill thinking it had a chance to gain majority control over it, but decided to sell once it became clear the other shareholder would not budge, he added.

Documents obtained by the Post identify Igor Kolomojsky – rated by Polish magazine Wprost as one of Eastern and Central Europe’s richest men, valued at $1.5 billion – and Gennady Bogolubov as beneficiary shareholders of a majority stake in Privatbank.

Ukraine’s steel industry is ranked seventh globally in terms of steel production.

Ukraine produced about 36 million tons of steel last year, and exported about 80 percent of it.

The Petrovsky mill’s annual production capacity is less than 3 million tons, only a fraction of the seven million tons that Ukraine’s largest steel plants possess.