By John Helmer, Moscow
Something dark, something blacked out is happening at TMK (Trubnaya Metallurgicheskaya Kompaniya, Metal Pipe Company), Russia’s leading manufacturer, and one of the world’s leading manufacturers, of steel pipes for oil, gas, water, and construction.
In an unprecedented triple change of mind, TMK owned by Dmitry Pumpyansky announced an initial public offering (IPO) of shares in its American subsidiary IPSCO Tubulars Inc. on January 29. Just ten days later, on February 8, the company announced to the New York Stock Exchange it was withdrawing the share sale. The official reason was that “the continued market and economic volatility are not optimal conditions for an initial public offering.” In four more weeks, on March 9, TMK issued a new prospectus, reopening the sale of the IPSCO shares.
The company will not explain why it changed its mind, or what has happened in the volatile New York market to justify restarting the IPO. Not a single London or Moscow-based bank analyst identified by TMK as specializing in its business will give a reason. Moody’s rating agency, which lifted TMK’s outlook from negative to stable on February 28, has also failed to explain what is happening.
The answer, however, can be found in the small print of the two IPO prospectuses issued by TMK and IPSCO. TMK’s debt has been growing, the two prospectuses report, revealing that TMK’s lenders are increasingly anxious to be repaid. Two of the banks are relatively small lenders, but they have been demanding early repayments in recent days, as TMK’s share price fell after the IPO cancellation.
The biggest of TMK’s lenders is the Russian state bank VTB. It is pressure from VTB which has caused the sudden re-issue of the IPO prospectus — with one important change visible in the small print; that’s to say, invisible in the small print. VTB is insisting Pumpyansky drop the share price target of the first prospectus and sell for whatever price he can get now. VTB’s cash call has led to a share price target in the new prospectus that is blank.
From the point of view of international bankers, other Russian steelmakers, and at times the Kremlin, Pumpyansky has been one of the more unlikeable of the steel oligarchs; the details can be followed in the archive  dating back to 2008.
The story of Pumpyansky’s attempt to sell IPSCO on the New York Stock Exchange, with an analysis of the first prospectus, can be read here .
Debt, shortage of cash, dependence on Gazprom for revenue and VTB for credit were the obvious vulnerabilities on Pumpyansky’s heel. Click for what happened next – the cancellation of the IPO .
TMK, which has been planning to keep 65% of IPSCO if the IPO gets off the ground, didn’t announce  the resumption of the share sale. In Houston, Texas, where IPSCO is headquartered, the subsidiary announced on March 12 that it has filed  “an amendment to its registration statement on Form S-1 with the U.S. Securities and Exchange Commission (the “SEC”) relating to a proposed initial public offering of shares of its common stock. The number of shares to be offered and the price range for the offering have not yet been determined…A registration statement relating to these securities has been filed with the SEC but has not yet become effective. These securities may not be sold, nor may offers to buy be accepted, prior to the time that the registration statement becomes effective.” / 
The prospectuses are almost identical except for the blanks. Other differences in the small print composed in the six-week interval between them, reveals the debt problem TMK is wrestling with, but doesn’t want to acknowledge too publicly.
The IPO documents reveal that in December last, TMK in Moscow called in IPSCO’s debt of $80.9 million. This was paid for with a fresh borrowing by IPSCO from the Merrill Lynch subsidiary of Bank of America and JP Morgan.
As of January 25, IPSCO acknowledged that it owed the two US banks $73.4 million. The IPO was intended by the banks to generate $129.2 million for IPSCO – “or $200.1 million if the underwriters exercise in full their option to purchase an additional 3,488,372 shares” (page 45  of the January prospectus). Pumpyansky had agreed with the banks not to keep this cash, but use it to pay off the loan taken in December. “We intend to use the net proceeds from this offering to repay a portion of the outstanding indebtedness under our new revolving credit facility and retain the remainder of the net proceeds for general corporate purposes.” In short, neither Pumpyansky in Moscow, nor the banks lending to IPSCO, wanted to carry the risk of continuing loans to IPSCO. That risk was, still is to be transferred by IPO to new shareholders.
These people (institutions, investment banks, fund managers) didn’t want to subscribe to the risk either, at least not in January. This month, according to the new prospectus, there is no telling how much will be raised from the share sale, so there is no telling either how much cash the banks will be able to claw back:
CLICK ON IMAGE TO ENLARGE
Source: https://www.sec.gov/Archives/edgar/data/1262719/000119312518077761/d464255ds1a.htm#rom464255_3  – page 44
The new prospectus also reveals that between the first IPO attempt and the second – that’s just six weeks – the amount owed Merrill Lynch and JP Morgan had been cut to $64.7 million. In other words, it appears the two banks demanded repayment of $8.7 million. This is despite the long maturity the banks purportedly were offering; according to both prospectuses, the “new revolving credit facility matures on December 7, 2022.”
TMK and IPSCO debt appears to be something of a Novichok, at least at Merrill Lynch, JP Morgan and VTB. Nobody wants to handle it.
At the start of this month, TMK issued its financial report for last year, audited by Ernst and Young. As of December 31, 2017, the company and the auditors say this:
Source: TMK’s audited financial report issued  on February 28, 2018.
The top table shows that both short-term and long-term bank loans have been increasing. TMK refuses to identify its bankers in its public reports, but the breakdown by currency in the second table shows that all of the increase in indebtedness, and 51% of the total debt is owed in roubles to Russian banks – a total equivalent to almost $1.7 billion. The rouble number almost certainly identifies TMK debt which is owed to the Russian state banks. Since VTB appears from most recent market reports of TMK’s debt refinancings to be TMK’s principal Russian lender, VTB’S Andrei Kostin appears to be telling Pumpyansky what he must do.
Left: Pictured sitting together at a meeting in Moscow on February 9, 2018 – that’s the day after Pumpyansky (left) told Kostin (right) he was pulling the IPO in New York – they appear to be sharing a joke. Right: President Vladimir Putin with Pumpyansky at an industrial technology fair at Yekaterinburg on July 10, 2017 . In 2014 Putin presented Pumpyansky with the Order for Services to the Fatherland, 4th degree.
Another joke is being shared with potential sharebuyers and investors. As a result of the new bank-driven share sale, they are being told nothing about what the shareholding structure of the new IPSCO will look like:
CLICK ON IMAGE TO ENLARGE
Standard & Poor’s and Moody’s are the two ratings agencies TMK advertises on the company website. S&P hasn’t reported at all on TMK since last November, ignoring the attempted IPO altogether. On November 27, S&P announced  it was lifting the outlook for TMK from negative to stable.
Moody’s was more deliberative. It did the same as S&P for TMK’s outlook but not until February 28; that is, a month after the IPO prospectus been issued for the first time, and almost three weeks after the company had announced  it was cancelling the IPO. That triggered a fall in TMK’s stock price of almost 4%, as investors calculated TMK wasn’t going to be able to reduce its debt.
SIX-MONTH SHARE PRICE TRAJECTORY FOR TMK
Source: https://markets.ft.com/data/equities/tearsheet/summary?s=TMKS:LSE 
The Moody’s rating report of February 28 can be read here . “’Our decision,’” according to the report, “’to change the outlook on TMK’s rating to stable mainly reflects a significant improvement in the financial and operating performance of its American division, complemented by the resilience of its Russian operations to oil price volatility. It also factors in our expectation that the company will be able to reduce leverage and maintain adequate liquidity,’ says Artem Frolov, a Vice President-Senior Credit Officer at Moody’s.”
Moody’s calculated that TMK and IPSCO would gain in revenue and profit with crude oil in the range for Brent between $40 and $60 per barrel during this year. In theory, this would generate enough cash for TMK to be able to reduce its debt. But the ratings agency wasn’t sure that the IPO would materialize, or if it did, how much money Pumpyansky would be able to draw back to Moscow to pay Kostin.
“Moody’s expects that a combination of increased earnings of American division [IPSCO] and sustainable solid earnings of Russian division will allow TMK to reduce its leverage towards or below 4.5x by year-end 2018 from 5.2x as of 30 September 2017. Deleveraging in 2018 may be more pronounced should the company proceed with the initial public offering of its US-based subsidiary IPSCO Tubulars Inc. The timing of the transaction and the use of proceeds have not been announced so far. Moody’s expects that TMK would primarily use the proceeds to repay part of its outstanding debt, in line with the company’s aim to reduce its net debt/EBITDA to 3.0x by the end of 2019.”
Moody’s qualified its positive forecast by conceding it “ could downgrade the ratings if (1) the company were unable to reduce its leverage, with Moody’s-adjusted gross debt/EBITDA remaining above 4.5x on a sustained basis; (2) the company fails to generate positive free cash flow on a sustained basis; or (3) its liquidity were to deteriorate.”
The unwillingness of TMK and IPSCO and its underwriters to set a new share price target is the reason for the blanks in the new prospectus. The analysts listed  by TMK were each asked three questions: what is the difference between the new March 9 prospectus issued by TMK for IPSCO and the prospectus issued on January 29? What is your assessment of what the new share price target will or should be? Is it your analysis, and report to clients, that TMK is anxious to sell at any price?
THE BRICKS IN THE CHINESE WALL FOR THE IPSCO SHARE SALE
All the analysts have refused to answer. Oleg Petropavlovskiy of BCS  in Moscow said his metals and mining team are not covering TMK or following the IPO, so they have made no valuation of IPSCO or the share price target. “If [the shares] are sold, that’s good. If not, no matter.”