Zyuzin under Attack

Yekaterina Shokhina, Olga Shevtsova

It seems like the state has decided to devour another major private company. Vadimir Putin has accused Mechel of tax evasion and coal at overestimated prices, asking anti-monopoly authorities to conduct an investigation. As a result, the holding's capitalization fell by one third

Yesterday, Putin, who was holding a meeting in Nizhny Novgorod on metal and coal prices increase. Although all companies increase their production prices, Mechel and its head Igor Zuzin, who was not present for health reasons, was singled out. Accusing Mechel of selling coal abroad "at prices two times lower than market prices" and not paying taxes, Putin asked Federal Anti-Monopoly Service (FAS) and Investigation Committee of the Prosecutor General's Office ti investigate Mechel's export activities.

Many experts say Putin has never been so harsh in his criticism of any businessman, except for one - Mikhail Khodorkovsky.

FAS initiated a case against Mechel's affiliated companies last month. Representatives of Rosprirodnadzor - Russia's environmental authority, said it had also sent some material on Mechel to the Prosecution, which led to opening a case against "Uzhny Kuzbass" - a Mechel business, on May 19th.

After Putin's speech yesterday, Mechel's quotes at NYSE fell by 35 %, and the holding's capitalization dropped by $ 5 bn. "This is a maximum drop-down for one company within one day, and reminds the situation during the Yukos case", said Georgi Buahenitsa of UniCredit Aton.

Mechel was surprised to hear Putin's criticism and it's staff members do not know what could cause such harsh remarks, a source in the company has said.

Many experts agree that there is little base for accusations against Mechel. Analysts believe that as a result of this story, the company will be sued and fined. "We estimate that the maximum fine can be from 1 to 5 % of the company's yearly return in the market where irregularities can be proven, but no more than 2 % of the holding's consolidated return", said Buzhenitsa. He thinks in Mechel's case, the fine can be something from $ 30 to 240 mn.

But if Investigation Committee begins scrutiny, paying a fine will not be enough for Mechel. We can suggest that the state is thinking of taking control of the company. Mechel is Russia's fifth biggest steel maker, and its core production in Chelyabinsk is the country's leading producer of high-quality alloy steel. Furthermore, the holding is expanding its presence in the ore mining production market.

But many market and political analysts don't think Mechel will share the fate of Yukos. "There is no political background here, it's pure economy", said Aleksei Makarkin of Political Research Center.