Three Set To Bid For Kryvorizhstal, Rada Attempting To Block Deal.

According to the State Property Fund, three companies submitted their applications as of yesterday, October 17 on the last day before the deadline. Earlier it was announced that Industrial Group (Arcelor/ IUD alliance), Mittal Steel and Smart Group had all made the security deposits required to participate in Kryvorizhstal’s (KSTL: SELL) privatization. Thus, these three companies appear to be the only particpants. Evrazholding, Severstal, Metalloinvest and SCM officially stated that they had dropped out. In a last ditch effort, this morning the Verkhovna Rada, lead by the Communists, the SDPU, the People’s Party and the Party of Regions, passed two draft laws in the first reading that would prevent Kryvorizhstal’s privatization. Concorde Capital: Despite the reduction in the number of potential participants from initial twelve to only three, the most serious bidders are still on the list and we expect them to compete fiercely. However, the attempts by the Rada to block the privatization are troubling. We believe that the laws precluding Kryvorizhstal’s privatization will not pass the final third reading, and in any case President Yushchenko would veto any such law. We view the Rada’s initiative as yet another attempt by Kryvorizhstal’s previous owners to retain the asset. We are still positive that Kryvorizhstal’s privatization will occur as scheduled. However, the risk of post-privatization ownership-related corporate conflicts may prevent the final price for the 93.02% stake in Kryvorizhstal from going beyond the level of USD 3 bln. The initial price was set at ~USD 2 bln.