Proposed demerger of PJSC Raspadskaya from EVRAZ plc

EVRAZ plc (“EVRAZ” or the “Company” and, together with its subsidiaries, the “EVRAZ Group”) announced that it was considering the strategic merits of, and possible structures for, the potential demerger of its metallurgical coal assets consolidated under PJSC Raspadskaya (“RASP” and, together with its subsidiaries, the “RASP Group”) (the “Demerger”). The board of EVRAZ (the “EVRAZ Board”) and management of EVRAZ have conducted a comprehensive review of the rationale and feasibility of the Demerger and have now concluded that the separation of the two businesses serves the long-term interests of EVRAZ’s shareholders, employees, clients and other stakeholders. EVRAZ today announces that definitive terms have been entered into in relation to the Demerger, subject to, among other things, approval of the Demerger and related matters by EVRAZ’s shareholders. A shareholder circular (the “Circular”) in relation to the Demerger has been submitted to the UK Financial Conduct Authority (the “FCA”) by the Company for approval. A further announcement will be made once the Circular has been approved for publication by the FCA, which is expected later today.

Demerger Rationale

The EVRAZ Board believes the separation of the two businesses serves the long-term interests of EVRAZ’s shareholders, employees, clients and other stakeholders. The Demerger will result in the creation of two distinct publicly listed businesses with leading positions in their respective fields, and will allow each to pursue tailored strategic, capital allocation and sustainability objectives. In particular, the EVRAZ Board believes the Demerger will benefit the stakeholders of the separate businesses in the following areas:

Increased transparency over sustainability performance and goals: Allowing each business to concentrate on its respective sustainability priorities, enhancing accountability for sustainability performance, and the definition and delivery of future strategy;

Tailored capital allocation: Enabling each business to adopt a capital allocation framework balancing its individual cash flow profile, growth investment strategy and capital return priorities;

Independent growth strategy for RASP: Allowing RASP to independently implement its strategy and pursue growth opportunities with dedicated financial and human resources; and Differentiated value proposition: Establishing a clear and focused equity story for each of EVRAZ, as a leading global producer of steel, iron ore and vanadium, and RASP, as a leading producer of high-quality metallurgical coal.

EVRAZ's dividend policy continues to anticipate dividend payments to shareholders of a minimum amount of US$300 million per annum, provided that the EVRAZ Group’s net debt/EBITDA ratio remains below 3.0x.

In order to demonstrate its commitment to delivering shareholder returns, RASP has adopted a dividend and leverage policy under which it intends to declare dividends semi-annually of not less than 100% of free cash flow, subject to net debt/EBITDA not exceeding 1.0x, or not less than 50% of free cash flow, if its net debt/EBITDA exceeds 1.0x. In order to ensure the strength of its balance sheet and long-term stability, RASP will aim to maintain a net debt/EBITDA ratio below 2.0x.

Overview of the Demerger

It is proposed that the Demerger will be effected by EVRAZ making an interim in specie distribution of the shares it directly holds in RASP (being approximately 90.9% of the total ordinary shares in RASP), which is listed on the Moscow Exchange, to EVRAZ shareholders. If the Demerger proceeds, EVRAZ shareholders are expected to receive an entitlement to 0.4255477880 of a RASP share for each EVRAZ share held at 6:00 p.m. on 15 February 2022.

Effect of the Demerger and Details of the Share Sale Facility

The effect of the Demerger will be that EVRAZ shareholders, who currently have an indirect interest in the RASP Group through their holding of EVRAZ shares, will have the opportunity to receive RASP shares and therefore hold a direct interest in the RASP Group.

EVRAZ recognises that some EVRAZ shareholders may be restricted from holding RASP shares. Such shareholders will have the opportunity to participate in a share sale facility (the “Share Sale Facility”), which is intended to provide those EVRAZ shareholders with the opportunity to sell, for cash, the RASP shares to which they will be entitled following the Demerger. Under the Share Sale Facility, EVRAZ will procure the sale through a sale agent of those RASP shares to which participants are entitled and will then, upon the sale of all such RASP shares, provide the cash proceeds (net of certain costs and expenses), to participants on a pro rata basis in US Dollars. Neither the sale price nor the sale timeframe will be guaranteed under the Share Sale Facility and the EVRAZ Board therefore recommends that EVRAZ shareholders that are capable of holding RASP shares, take the necessary action to receive them and do not participate in the Share Sale Facility. The Circular will include further details on the Share Sale Facility and on the steps EVRAZ shareholders are advised to take to receive the RASP shares to which they will be entitled.

After completion of the Demerger and the Share Sale Facility, EVRAZ would accordingly cease to hold the RASP shares which it currently holds and the RASP Group would no longer form part of the EVRAZ Group.

Responsible Transition

EVRAZ and RASP will operate as separate, independent companies following the Demerger. RASP currently provides approximately 70% of EVRAZ's metallurgical coal supply requirements needed to support its operations. To aid the transition certain trading arrangements, including two new, longterm coal offtake agreements (pursuant to which RASP will provide EVRAZ with up to approximately 60% of the post-Demerger EVRAZ Group's coal requirements for the purposes of steel production), will continue to 31 December 2026. East Metals AG, the trading subsidiary of the EVRAZ Group, will continue to re-sell coal purchased from the RASP Group for up to fifteen months following the Demerger. RASP will become a related party of EVRAZ following the Demerger and such arrangements have been entered into on arms’ length terms. Whether they are renewed upon expiry will be a matter to be considered by both groups in due course. For a transitional period of approximately one year, certain entities in the post-Demerger EVRAZ Group will also continue to provide administrative and support services to the RASP Group, including accounting, IT, treasury, agency and consultancy services.

Steps to Completion of the Demerger

Due to the size of the RASP Group, the Demerger is a Class 1 transaction under the UK Listing Rules and is therefore subject to approval by EVRAZ shareholders. EVRAZ does not currently have sufficient distributable reserves to make the in specie distribution of all of its RASP shares and therefore to effect the Demerger. As an interim step, the EVRAZ Board proposes to capitalise the sum of US$8,200,000,000 currently standing to the credit of EVRAZ's profit and loss reserve by way of issuing certain capital reduction shares (the ”Capital Reduction Shares”), and subsequently to reduce the Company’s share capital by cancelling the Capital Reduction Shares, so as to create sufficient distributable reserves to effect the Demerger (the “Capital Reduction”). As a technical interim step, EVRAZ’s articles of association will also need to be amended as they do not currently contemplate or expressly permit an interim in specie distribution in the manner proposed to implement the Demerger. The Demerger will therefore require the approval of EVRAZ shareholders at a general meeting and the UK Court to confirm the Capital Reduction. The Circular will include further details on the resolutions to be proposed at the general meeting, which is expected to be held on 11 January 2022, and on the actions EVRAZ shareholders are recommended to take by the EVRAZ Board.

Major Shareholder Undertakings

EVRAZ’ major shareholders (being Greenleas International Holdings Ltd., Abiglaze Ltd and Crosland Global Limited), who currently hold 57.61% of EVRAZ shares and are expected to hold at least 53.72% of the shares in RASP following the Demerger, have provided an undertaking to EVRAZ to receive the RASP shares to which they will be entitled following the Demerger and not to sell such shares through the Share Sale Facility. They have also provided an undertaking to receive Capital Reduction Shares to effect the Capital Reduction. Further details of the terms of the Demerger and related arrangements will be included in the Circular.

Anticipated Timeline

Subject to EVRAZ shareholder and Court approvals being obtained, it is currently expected that the settlement date for the transfer of RASP shares to EVRAZ shareholders pursuant to the Demerger will be on 7 April 2022, and that the sale of RASP shares pursuant to the Share Sale Facility will be completed by October 2022. Commenting on the Demerger, Alexander Abramov, Chairman of EVRAZ, said: “This marks another major milestone in the history of EVRAZ. As part of the process, a comprehensive review was conducted of the rationale for, and feasibility of, the Demerger. Based on this, the EVRAZ Board believes that the separation of the two businesses serves the long-term interests of our shareholders, employees, clients and other stakeholders, and it has approved the definitive terms of the transaction.” Commenting on the Demerger, Alexander Frolov, Chairman of PJSC Raspadskaya, said: “Following this transaction, Raspadskaya will strengthen its position as the largest coking coal producer in Russia and as a leading player globally, with vast and high-quality coal reserves and resources. In addition, the demerger will allow Raspadskaya to focus on its own growth strategy and sustainable development.”

Important Actions to be Taken

The Circular will include further details on the general meeting and on the actions EVRAZ shareholders are advised to take in relation to it. The Circular will also include details on the steps EVRAZ shareholders are advised to take to receive the RASP shares to which they will be entitled, which will include opening or otherwise holding an account with a direct or indirect participant of a clearing institution eligible to receive RASP shares (such as Euroclear, Clearstream or the NSD), and providing the details of such account to the Company’s registrar by no later than 15 March 2022.