Steel and coal producer Mechel and one of the most indebted industrial holdings in Russia in 2014 plans to refinance USD 1bn, company's VP for finance Stanislav Plushenko told the press. Net debt is estimated at about USD 9bn vs. USD 9.4bn as of end of 2013. Out of USD 1bn to be refinanced in 2014, USD 500mn are to be paid to Russia's second-largest bank VTB, the rest being smaller credit lines.
Mechel calls off the buy-back program for its ADRs worth of USD 100mn and to raise additional funds will be seeking an investor for the development of Elga coal mine in Yakutia region. In September 2014, Russia's development bank VneshEkonomBank (VEB) approved granting Mechel USD 2.654bn worth of credit lines for launching Elga, which postponed numerous times. VEB was set to become a minority shareholder in the project, total cost of which is estimated at USD 4.74bn.
Elga mine in Yakutia region is one of the largest and hard-to-access coking coal mines in the world. Previously the company was only producing a cheaper electric coal at the mine, and it planned to start temporary production of coking coal by the end of 2013, producing about 50,000 tonnes. In 2013 Mechel got government's approval to postpone the development of a full-scale coking coal processing plan at Elga until 2017.
Industry experts surveyed by gazeta.ru on the issue, note lower coal consumption in China and declining global coal prices, while doubting that USD 1bn could be raised for a minority stake in Elga.
According to previous announcements, in 2013 Mechel revised the covenants and/or postponed servicing of about USD 6.5bn worth of loans: USD 1.36bn credit lines granted Russia's largest bank Sberbank, USD 1.8bn credit lines from state development bank VneshEkonomBank (VEB), and USD 1bn club loan by a syndicate of foreign and domestic banks, and USD 2.35bn of loans from Gazprombank.
Analysts, surveyed by Prime in December, believed that current fundamental value of Mechel is close to zero. Only government support and goodwill of the creditors is holding the company from bankruptcy. The chance of de-listing of the company's shares or de-consolidation of company's assets into independently operating units is seen as high. Bankruptcy of the holding would be socially and structurally damaging, the analysts agreed.