Khartsyzk Tube (HRTR ? Sell) To Scale Back Tolling Scheme With Azovstal

HRTRwill reduce its share of sales under a tolling with Azovstal until September. The share of sales will be reduced from 80% in March to 60% in April, 50% in June, 15% in July and the company will not use the scheme in August. Concorde Capital: HRTR is known for practicing tolling/transfer pricing schemes with Azovstal (AZST) and Leman Pipe trader, meaning that most of the company?s earnings are accumulated at these related parties. The ?tolling break? is expected to be very positive for HRTR?s 2005 financials, as it will boost the company?s top-line. However, we do not believe that HRTR?s management, which is loyal to System Capital Management (SCM), has made a decision to abstain from related party transactions in the future, and we expect them to resume tolling by year end. On the other hand, the move may be a marketing measure by SCM which allegedly plans to sell some of its assets. If so, HRTR?s share price will enjoy significant upside. WATCH