EVRAZ announces consent solicitation
THIS ANNOUNCEMENT IS NOT FOR DISTRIBUTION TO ANY PERSON LOCATED OR RESIDENT IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE SUCH ANNOUNCEMENT.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.
EVRAZ announces consent solicitation
19 April 2021
EVRAZ plc (the "Issuer" or "EVRAZ") announces a consent solicitation in relation to its outstanding notes detailed in the table below (each of the three series of notes referred to below, a "Series", and all outstanding notes of all Series collectively, the "Notes").
Description of Notes
Regulation S Global Certificate ISIN / Common Code
Rule 144A Global Certificate ISIN / Common Code / CUSIP
Early Consent Fees
U.S.$500,000,000 6.75% notes due 2022 (the "2022 Notes")
XS1405775377 / 140577537
U.S.$ 2.50 per U.S.$1,000 in principal amount of Qualifying Notes
U.S.$750,000,000 5.375% notes due 2023 (the "2023 Notes")
XS1533915721 / 153391572
US30050AAG85 / 111731110 / 30050A AG8
U.S.$ 4.50 per U.S.$1,000 in principal amount of Qualifying Notes
U.S.$700,000,000 5.250% notes due 2024 (the "2024 Notes")
XS1843443273 / 184344327
US30052KAA79 / 111730776 / 30052KAA7
U.S.$ 6.50 per U.S.$1,000 in principal amount of Qualifying Notes
The Issuer has today provided notices of meetings (the "Notices of Meetings") to solicit proxies (the "Solicitation") from the beneficial holders of the outstanding Notes (the "Noteholders") to consider and, if thought fit, pass Extraordinary Resolutions (the "Extraordinary Resolutions") at meetings of the Noteholders (the "Meetings") in relation to certain consents and amendments (the "Consents and Amendments") being sought to (i) the terms and conditions of the 2022 Notes as set out in Schedule 2 to the 2022 Trust Deed, (ii) the terms and conditions of the 2023 Notes as set out in Schedule 2 to the 2023 Trust Deed and (iii) the terms and conditions of the 2024 Notes as set out in Schedule 2 to the 2024 Trust Deed, all as more fully described in the consent solicitation memorandum (the "Memorandum") dated 19 April 2021 (the "Proposal").
Subject to the terms of the Proposal, Noteholders who validly vote in favour of the Proposal in accordance with the Solicitation will be entitled to receive the applicable Early Consent Fee on the Settlement Date (see "Early Consent Fee" below). Noteholders are advised to refer to the Memorandum for meanings of capitalised terms used in this announcement, the full terms of the Solicitation and the procedures related thereto.
The Notices of Meetings convening the Meetings via teleconference, at which the Extraordinary Resolutions to approve the Proposal and its implementation will be considered and, if thought fit, passed, have been published in accordance with the Conditions.
The initial Meeting (in respect of the 2022 Notes) will commence at 12:00 p.m. (London time) on 12 May 2021, with subsequent Meetings in respect of each other Series being held at 10 minute intervals thereafter or after the completion of the preceding Meeting (whichever is later).
Background to and Rationale for the Proposal
On 26 January 2021, EVRAZ announced that the Board of EVRAZ had given approval for EVRAZ to consider the strategic merits of and possible structures for a potential demerger of EVRAZ's coal business, currently consolidated under PAO Raspadskaya ("Raspadskaya" and the potential transaction, the "Potential Demerger").
Whilst the Board of EVRAZ continues to evaluate various strategic options and there can be no assurance that the Potential Demerger will be undertaken, on 15 April 2021, EVRAZ announced (the "Announcement") that the Board of EVRAZ had given its approval for the Issuer to move forward in its preparations for the Potential Demerger and that its current intention, were the Potential Demerger to be effected, would be for the Potential Demerger to be structured as described below. These actions, if effected, would be subject to receipt of applicable Board, shareholders', regulatory and court approvals and confirmations (the "Demerger Conditions").
It is expected that the Potential Demerger, if implemented will benefit EVRAZ's stakeholders in the following areas:
• Differentiated value proposition: Shape a clear profile for EVRAZ as a global leading steel producer with a focus on high value-add infrastructure steel products, geographically diversified asset and sales base;
• Increased earnings stability for EVRAZ: Historically the EBITDA margin of the Coal segment has been more volatile than that of the Steel segment;
• Increased transparency over sustainability performance and goals: Allow EVRAZ to concentrate on its ESG priorities, enhancing accountability of ESG achievements and comparability of results against peers; and
• Optionality for investors: Flexibility to customise the exposure to respective sectors, earnings volatility profiles and ESG performance in accordance with investors' risk and return appetite.
Description of the Potential Demerger
It is currently intended that the Potential Demerger, if undertaken, will be effected by EVRAZ declaring and distributing a dividend in specie of all of the shares which EVRAZ holds in Raspadskaya to all shareholders of EVRAZ, pro rata to their existing shareholdings in EVRAZ (the "Dividend Demerger"). As at the date hereof, EVRAZ holds 90.9% of the total shares of Raspadskaya.
Transactions between Raspadskaya and EVRAZ
(i) Certain financing arrangements
Certain financing arrangements are intended to be put in place and/or completed prior to the Potential Demerger being effected in order to rebalance the capital structure of EVRAZ and Raspadskaya.
On 18 December 2020, the shareholders of Raspadskaya approved the acquisition of 100% of the equity capital of AO UCC Yuzhkuzbassugol ("YUKU") from EVRAZ NTMK, a wholly owned subsidiary of the Issuer, for RUB 67,741 million (U.S.$917 million as at 31 December 2020) payable in cash (the "YUKU Consideration"). The transfer of all shares in YUKU to Raspadskaya was completed on 30 December 2020 and the payment of the YUKU Consideration is expected to be made by Raspadskaya by 30 June 2021. To fund the payment of the YUKU Consideration and other expenses related to the Potential Demerger, it is expected that Raspadskaya will raise new debt financings from a variety of sources, including the Russian debt capital markets and bilateral bank facilities (the "Raspadskaya Financings").
(ii) Raspadskaya Dividends
On 30 March 2021, Raspadskaya announced annual dividends in the amount of RUB3.8 billion (equivalent of approximately U.S.$50 million as of 30 March 2021) to Raspadskaya's shareholders. Following completion of a share buyback by Raspadskaya in February 2021, EVRAZ owns 90.9% of the total shares in Raspadskaya and as such would receive the Rouble equivalent of approximately U.S.$42 million (the "Dividend") net of applicable withholding tax.
(iii) Arrangements between EVRAZ and Raspadskaya following the Potential Demerger
The Potential Demerger if undertaken, will necessitate that EVRAZ and Raspadskaya enter into various contractual agreements in order to effect the Potential Demerger and govern the relationship between them thereafter.
EVRAZ and Raspadskaya intend to enter into a demerger agreement to give effect to the separation of the steel and coal businesses and a strategic cooperation deed pursuant to which EVRAZ would provide certain services to Raspadskaya going forward. Contractual arrangements pursuant to which EVRAZ purchases coking coal from Raspadskaya would need to be extended. All future arrangements, including for such services provision and for the purchase of coking coal from Raspadskaya would be on arm's length terms.
Relative Contribution of Raspadskaya
The audited consolidated financial statements of EVRAZ as of and for the year ended 31 December 2020 (the "2020 Financial Statements") as set out on pages 158 to 249 of EVRAZ's annual report for that year (the "2020 Annual Report") which may be found at: https://www.evraz.com/en/investors/reports-and-results/annual-reports/ are hereby incorporated by reference herein. The relative contribution of Raspadskaya as of and for the year ended 31 December 2020 is presented in the Coal segment.
Certain Unaudited Pro-Forma Financial Information and Debt Management Priorities
The table below sets forth unaudited and unreviewed pro forma financial information of EVRAZ (excluding Raspadskaya and its subsidiaries) to illustrate the effect of the Potential Demerger and the relevant transactions between EVRAZ and Raspadskaya described above.
The unaudited and unreviewed pro forma financial information below assumes that:
(i) with respect to the calculation of EBITDA, that the Potential Demerger had occurred on 1 January 2020; and
(ii) with respect to the calculation of Cash and Cash Equivalents and Net Debt, that the Potential Demerger was completed on 31 December 2020 and the YUKU Consideration and the Dividend were received by EVRAZ on 31 December 2020.
As at and for the year ended 31 December 2020
in millions of U.S. dollars
Cash and Cash Equivalents
EVRAZ Pro Forma post EVRAZ
If the Potential Demerger is implemented, EVRAZ intends to remain committed to its existing financial policies, in particular to continue to target Net Debt/EBITDA below 2.0x through the cycle.
It is expected that additional Cash and Cash Equivalents that are received by EVRAZ as a result of the YUKU Consideration and the Dividend will be applied to selectively repay Total Debt of EVRAZ that was outstanding as at 31 December 2020. As at 31 December 2020 Raspadskaya did not have any outstanding external Total Debt.
EVRAZ does not expect any negative rating action as a result of the announcement of the Consent Solicitation.
Summary of the Proposal
Set out below is a summary of the key changes that are the subject of the Proposal. It is not intended to be a full description of all the changes and Noteholders are referred to, and should carefully review, the Proposal in full, as set out under "Terms of the Solicitation - General".
The holders of each Series of Notes are being requested to provide their consent to, and approve, the following, with the Consents and Amendments (if approved) to take effect on the Effective Date:
· Condition 4.3 (Transactions with Affiliates) shall be amended by the insertion of the following at the end of the proviso:
"(x) transactions made in order to effect the Permitted Demerger."
· Condition 4.5 (Mergers and Similar Transactions) shall be amended by the insertion of the following at the end of Condition 4.5(c):
"or (iii) the Permitted Demerger."
· Condition 19 (Definitions)
o The definition of Aggregate Subsidiary Indebtedness shall be amended by the insertion of the following at the end of the definition:
"and (f) Indebtedness of a Subsidiary of the Issuer with a final maturity later than the Repayment Date."
o The definition of Asset Sale shall be amended by the insertion of the following at the end of the definition:
"or the Permitted Demerger"
o The following new defined terms shall be inserted:
§ ""Demerger" means the delivery, by the Issuer, to all shareholders of the Issuer as a class, pro rata to their existing shareholding's in the Issuer, of all of the Issuer's interests in the Capital Stock of Raspadskaya, whether directly or indirectly, and whether by way of a dividend in specie or other arrangement.
§ "Issuer's Coal Business" means PAO Raspadskaya ("Raspadskaya") and its Subsidiaries as at 31 December 2020.
§ "Permitted Demerger" means the demerger of the Issuer's Coal Business by means of a Demerger and any other transactions as may be necessary to give effect thereto."
In respect of DTC Notes, 5:00 p.m. (EST) / 10:00 p.m. (London time) on 30 April 2021 has been set as the Record Date (see "Expected Timetable" below) in respect of the Proposal. The Record Date is used to determine which DTC Participants will be allowed to vote on the Proposal, and only those Direct Participants in DTC appearing on the omnibus proxy issued by DTC on the Record Date will be entitled to submit Forms of Sub-Proxy.
Early Consent Fee
In consideration, Qualifying Noteholders who validly submit an Electronic Voting Instruction or who validly submit a Form of Sub-Proxy, as applicable, in favour of the relevant Extraordinary Resolution (and who have not validly revoked their Electronic Voting Instruction or Form of Sub-Proxy, as applicable) that is received by the Tabulation Agent on or prior to the Early Consent Expiration Time will be entitled to receive the applicable Early Consent Fee.
The following sets out the applicable Early Consent Fee payable to a Noteholder on the Settlement Date (subject to the terms of the Memorandum) in respect of each Series of Notes (in each case per U.S.$1,000 in principal amount of Qualifying Notes held by such Noteholder):
Series of Notes
Early Consent Fee
Revocation of instructions
Noteholders who have submitted Electronic Voting Instructions or Forms of Sub-Proxy, as applicable, have a right to revoke such instruction in the following circumstances only: (i) if required by law or permitted by the relevant Trust Deed (as applicable); or (ii) if the Issuer considers that any modification or amendment (excluding any material modification or amendment to the relevant Extraordinary Resolution which may not be made during the relevant Meeting notice period) is materially prejudicial to Noteholders compared with the initial terms of the Proposal and Solicitation. In the case of (ii) above, the Issuer will give notice to Noteholders via a public announcement and specify a time period of not less than three London Business Days from the date of such announcement during which Noteholders will have the right to revoke their Electronic Voting Instructions or their Forms of Sub-Proxy, as applicable.
Expected Timetable (assuming the Meeting is not adjourned)
Date and Time
Launch Date/Announcement of the Solicitation
Announcement of the Solicitation and each Notice of Meeting given to Noteholders of each Series through the Clearing Systems.
Memorandum made available to Noteholders via the Tabulation Agent (free of charge).
19 April 2021
Record Date in respect of DTC Notes. Only Direct Participants in DTC at this time and date will be entitled to submit a Form of Sub-Proxy.
5:00 p.m. (EST) / 10:00 p.m. (London time) on 30 April 2021
Early Consent Expiration Time and Early Consent Date
Deadline for Noteholders to deliver or procure delivery of Electronic Voting Instructions or Forms of Sub-Proxy in favour of the relevant Extraordinary Resolution to the Tabulation Agent to be eligible to receive the applicable Early Consent Fee.
5:00 p.m. (EST) / 10:00 p.m. (London time) on 30 April 2021
Final Consent Expiration Time and Final Consent Date
Deadline for Noteholders to deliver or procure delivery of Electronic Voting Instructions or Forms of Sub-Proxy in favour of the relevant Extraordinary Resolution to the Tabulation Agent to be eligible to vote but not to receive the applicable Early Consent Fee.
Latest time for Noteholders to appoint the Tabulation Agent (or its nominee) as proxy to attend the relevant Meeting and vote in respect of the applicable Extraordinary Resolution or to appoint another proxy to attend and vote at the relevant Meeting in accordance with the provisions of the relevant Trust Deed and the relevant Notice of Meeting.
12:00 noon (EST) / 5:00 p.m. (London time) on 7 May 2021
Date of the Meetings
12 May 2021
Announcement of results
The announcement via the Clearing Systems of the results or notice of adjournment of the Meetings, as the case may be.
12 May 2021, or as soon as reasonably practicable after the Meetings
If any Extraordinary Resolutions are passed, without requiring any adjourned meetings, the date on which the relevant Proposed Supplemental Trust Deeds shall be executed and delivered and become effective.
Not later than 2 days after the relevant Extraordinary Resolutions have been passed
On or about 14 May 2021
Settlement in respect of the applicable Early Consent Fees.
The Issuer will make (or cause to be made) announcements in connection with the Solicitation in accordance with applicable law (i) by delivery of notices to the Clearing Systems for communication to Direct Participants, (ii) through RNS and (iii) through RIS. Copies of all announcements, notices and press releases may also be obtained from the Tabulation Agent at its address and telephone number as set forth on the back cover of this Memorandum. Noteholders are urged to contact the Solicitation Agent or the Tabulation Agent for the relevant announcements during the course of the Solicitation, the contact details for which are on the last page of this Memorandum.
Any questions from any person regarding the terms of the Proposal or the Solicitation may be directed to the Solicitation Agent at the addresses and telephone number specified below:
J.P. Morgan Securities plc
25 Bank Street
London E14 5JP
Attention: Liability Management
Telephone: +44 (0) 207 134 2468
Email: [email protected]
Noteholders may obtain copies of the Memorandum, the Notices of Meetings and any announcements in connection with the Solicitation from the Tabulation Agent:
Lucid Issuers Services Limited
12 Argyle Walk
London WC1H 8HA
Attention: Arlind Bytyqi / Jacek Kusion
By telephone: +44 207 704 0880
By email: [email protected]
Neither the Solicitation Agent, the Tabulation Agent, BNY Mellon Corporate Trustee Services Limited (the "Trustee") nor the Issuer takes any responsibility for the contents of this announcement and none of the Issuer, the Solicitation Agent, the Tabulation Agent, the Trustee or any of their respective directors, employees or affiliates makes any representation or recommendation whatsoever regarding the Solicitation, or any recommendation as to whether Noteholders should provide their consent in the Solicitation. This announcement must be read in conjunction with the Memorandum. This announcement and the Memorandum contain important information which should be read carefully before any decision is made with respect to the Solicitation. If any Noteholder is in any doubt as to the action it should take, it is recommended to seek its own advice, including as to any tax consequences, from its stockbroker, bank manager, solicitor, accountant or other independent adviser.
Within the United Kingdom, this announcement is directed only at persons having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ("relevant persons"). The investment or investment activity to which this announcement relates is only available to and will only be engaged in with relevant persons and persons who receive this announcement who are not relevant persons should not rely or act upon it.
This announcement is not a solicitation of consent with respect to any Notes and does not constitute an invitation to participate in the Solicitation in or from any jurisdiction in or from which, or to or from any person to or from whom, it is unlawful to make such invitation under applicable securities laws. The Solicitation is being made solely pursuant to the Memorandum, which sets forth a detailed statement of the terms of the Solicitation.
The distribution of this announcement in certain jurisdictions may be restricted by law. Persons into whose possession this announcement comes are required to inform themselves about, and to observe, any such restrictions.
 The total number of shares used to calculate this percentage includes treasury shares.
 Cash and cash equivalents as appearing in the 2020 Financial Statements, as adjusted by (x) the elimination of Cash and cash equivalents held by the Coal Segment as set out in the 2020 Financial Statements; and (y) the addition of (1) the YUKU Consideration and (2) the Dividend.
 Cash and cash equivalents as appearing in the 2020 Financial Statements.
 EBITDA is determined as a segment's profit/(loss) from operations adjusted for social and social infrastructure maintenance expenses, impairment of assets, profit/(loss) on disposal of property, plant and equipment and intangible assets, foreign exchange gains/(losses) and depreciation, depletion and amortisation expense. See Note 3 of the 2020 Financial Statements for additional information and reconciliation with IFRS financial statements. The current calculation is different from that used for covenant compliance calculations.
 EBITDA as appearing in the 2020 Annual Report as adjusted to reflect revenues, expenses and income taxes relating only to the Steel segment. Revenues generated from or expenses incurred in respect of Raspadskaya and its subsidiaries were treated as transactions with third parties.
 EBITDA as appearing in the 2020 Annual Report.
 Net Debt represents total debt less cash and liquid short-term financial assets, including those related to disposals classified as held for sale. Net debt is not a measure under IFRS and should not be considered as an alternative to other measures of financial position. EVRAZ's calculation of net debt may be different from the calculation used by other companies and therefore comparability may be limited. The current calculation is different from that used for covenant compliance calculations.
 Net Debt as appearing in the 2020 Annual Report, as adjusted by (x) the addition of (1) the YUKU Consideration and (2) the Dividend; and (y) the elimination of Cash and Cash equivalents held by the Coal Segment as set out in the 2020 Financial Statements. As at 31 December 2020 Raspadskaya did not have any outstanding external debt.
 Net Debt as appearing in the 2020 Annual Report.
 Total debt represents the nominal value of loans and borrowings plus unpaid interest, finance lease liabilities, loans of assets classified as held for sale and the nominal effect of cross-currency swaps on principal of Rouble denominated notes. Total debt is not a measure under, IFRS and should not be considered as an alternative to other measures of financial position. EVRAZ's calculation of total debt may be different from the calculation used by other companies and therefore comparability may be limited. The current calculation is different from that used for covenant compliance calculations.