Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

MN Speciality Steels – hardly one for the private investor

I recently had a look at a private placement document for MN Speciality Steels (‘MNSS’).

MNSS is a UK company that is in turn a majority shareholder in a business based in Montenegro (yes, it was new one for me as well!) and listed on that countries Stock Exchange. The only thing I know about Montenegro is that it was formerly part of Yugoslavia-an area not renowned for its political stability!

However attractive the steel market in general, and the investment proposition in particular may appear, it is hard to for me see how this presents a suitable investment opportunity for the UK private investor to whom the private placement document appears to be directed.

This is a private capital raising through a private UK company therefore the shares will not be freely traded on a UK market.

A fund raising of US$34million to support a business based in Montenegro is very demanding in the current market. I’m not sure what happens if they only receive the minimum US$3m.
I don't think that's going to go very far in terms of the steel industry and it's only likely to pay the fees!

I'm always sceptical why the big boys aren't in there already if it looks such an enticing investment prospect.

A large element of the fund raising is in respect of debt repayment and another big chunk covers working capital requirements to support raw material purchases.

There is also a paragraph in respect of foreign investor protection, however, we know how this can change overnight.

They are proposing to raise funds at US$8 per share having previously raised US$27m in December 2006 at only US$1.66 per share. The document makes reference to a 'minimal uplift' since that time, however, that looks like a 300%+ return in 8 months and hardly minimal!

There is no indication in the document of the impact of fund raising fees and the net proceeds going to the company. There was no up to date Balance Sheet only a P&L account and I didn't see any information in respect of the current shareholders in MNSS

In my opinion this is an investment for institutional investors who have an in depth knowledge of the steel industry and the country in which it is based. More importantly it’s an investment for those institutional investors who can also dictate investment terms.

It doesn't seem very appropriate for your average (or even above average) UK investor.


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