Industrial Union of Donbas loses control over its assets in Alchevsk

Макроэкономика 19.12.2017 Steel holding Industrial Union of Donbas (IUD) filed an official statement on Dec. 18 that it has lost operating control over its enterprises located in the city of Alchevsk on the occupied part of the Luhansk region of Ukraine, Interfax-Ukraine reported the same day. The lost assets include Alchevsk Steel (ALMK UK) and Alchevsk Coke, which accounted for a majority of the holding's assets. “Today we have to state that, de facto, the management and shareholders of IUD have lost effective control over its Alchevsk-based assets and office premises,” IUD stated, adding that some of the Alchevsk-based assets were pledged under various loans of the IFC, the EBRD and a group of international banks. Interfax-Ukraine also reported on a statement from "the occupied part of Luhansk Oblast" claiming the work of Alchevsk Steel has been re-launched. The plant has officially stood idle since Feb. 13, 2017, when it had to stop producing hot iron due to its inability to get iron ore from central Ukraine. Interfax's anonymous source claimed that the IUD assets have been taken over by Vneshtorgservis, a company that reportedly controls other metallurgical assets on the occupied territories of the Donetsk and Luhansk regions. Alexander Paraschiy: IUD was the last big holder of assets on the occupied territories of Donbas that still tried to retain control of them. Recall, the holdings controlled by Rinat Akhmetov, DTEK and Metinvest, reported on their loss of control over their assets in the occupied territories on Mar. 15, 2017. Another company heavily exposed to the region, Donbasenergo, reported on the loss of its assets on Mar. 21. It was logical that IUD, whose biggest shareholder is considered to be Russian state holding Vneshekonombank, was able to retain its control over its assets in occupied Ukraine. In light of this, the latest statement from IUD looks strange. In our view, IUD’s official loss of control is related to the wish of Russian-backed occupiers to relaunch the work of Alchevsk Steel (which is the core enterprise for Alchevsk city, with its pre-war population of over 100,000). That would have been impossible to do involving IUD and/or Vneshekonombank, both of whom face the risk of international sanctions in case they deal officially with the occupiers. In any case, the news changes little for the stakeholders of IUD, which have no chance to operate Alchevsk Steel in the current geopolitical situation.