Would those with in depth of knowledge in MTL please comment on the comparison between the common stock of MTL and the MTL Preferred trading as ADRs here in the U.S. I do not understand the price discrepancy. Thank you in advance for any intelligent information.
If MTL makes a profit, MTL.P is guaranteed dividend of 20% of net. If common div is greater than this, preferred will be raised to match. If MTL makes no profit, they will likely give out a "symbolic" dividend to keep preferred's from getting voting rights (Like this last year). In short, if MTL is making money, MTL.P is getting a good dividend payout. I would hope they're not in the business of screwing the MTL.P holder since Mechel holds 40% of said preferred shares.
Here is from MTL website:
"The annual fixed dividend payable per one preferred share of the Company shall be defined in the amount of twenty (20) percent of the Company’s net profit based on data of annual consolidated financial reports prepared in compliance with the International Reporting Standard used by the Company and audited by an independent auditor in compliance with applicable audit principles, divided by One hundred thirty eight million seven hundred fifty six nine hundred and fifteen (138,756,915)
If the amount of the dividend payable on one common share in a certain year exceeds the amount of a dividend payable, by the Company, on one preferred share in the same year, then the amount of a dividend payable on one preferred share shall be increased to the amount of a dividend declared on one common share."
138,756,915 shares is a large number to split the profit with. You are also leaving out all the costs associated with buying (and profiting from) these preferreds. I am not saying they are bad. As far as I can see they could be as bad or as good as the commons. But they are far from a guaranteed fixed income if/when dividends come back. Even then, so much arbitrary stuff could go on that little is left for them. Could be a home run, could be a complete waste.
Those "preferred" shares are not the typical "preferred" american shares. They are subject to many limitations and don't seem to have any "advantage" over commons as in liquidation preference. They are a weird instrument. The ADRs are half the value of the non-adr preferreds and for some reason (losses most likely) they have not been paying dividends lately. At least, that is what their wwebsite shows. They are also subject to other limitations such as special russian taxes for capital gains and the like. This may or may not happen. There is a lot of discretionary power by russian authorities so in that regard they are a lot less certain than regular preferreds in the US. In addition, the Justice family has been paid with these perferreds and it could be that they have been net sellers.
I may be wrong but if anyone else sees any value on these preferreds please explain.
Yes selling pressure has been from the Justice family as they diversify their holdings. But look at institutional buying has been on a tear with over 40 mil purchased last 1/4 most by JP Morgans funds. Now they're ranked higher in debt structure than common like in the USA , but these shares have NO voting rights attached to them, they are thinly traded and trade at a discount to listed in USSR of 16.8% considering exchange rate. My though here is institutions are milking the shares away from the Justice family.