Avdiyivka Coke Transfers Pavlogradugol Stake to DTEK

According to the Donbas Fuel and Energy Company (System Capital Management’s energy wing), as part of the restructuring of business groups within SCM, it has received a 92.11% stake in Pavlogradugol from Avdiyivka Coke (AVDK: BUY), which is part of SCM’s metals & mining wing, Metinvest. Eugene Cherviachenko: This news comes as no surprise and was accounted for in our evaluation (see report of February 28, 2007). We maintain our BUY recommendation on the stock. Given the precedent set in similar transactions (Avdiyivka Coke passed shares of Komsomolets Donbasa in late 2006 – early 2007), we think that the company is likely to have its long-term liabilities offset at par (nearly USD 177 mln) rather than receive cash, although the deal mechanism was not disclosed. We believe Avdiyivka Coke will continue to control another coking coal asset, Krasnodon Coal privatized by the coke maker in 2004-2005, in which it has a 99.93% stake, as the two companies complement each other within the vertically integrated coal and coke division of Metinvest.