OREANDA-NEWS. November 19, 2009. Alexander Zanodvorov, owner of a 74.8% stake in SCON, reached an agreement with his creditors (Natixis, Alfa Bank and some hedge funds) to restructure his personal US560m debt, under which he had pledged his stake in Seventh Continent, reported the press-centre of OTKRITIE Financial Corporation.

Under the new agreement Mr. Zanadvorov will cede a 15% stake in SCON to his creditors and SCON will issue to creditors US 630m in 8-year bonds (his personal debt plus unpaid interest) in exchange for the cancellation of Mr. Zanadvorov's personal debt.

View: The transaction, in essence, represents a conversion of Mr. Zanadvorov's personal debt into corporate debt. This is very bad news for minority shareholders, since SCON debt will more than double to reach US1.1bn, and the debt to EBITDA ratio will reach the critical level of 10x.

Valuation: Seventh Continent currently trades on a 2009E EV/ EBITDA of 10.4x, which is a 20% discount to EM peers.

Action: We reiterate our SELL rating for the stock.