OAO Mechel (MTL:US), Russia’s largest producer of steelmaking coal, is studying the sale of $500 million to $1 billion in Eurobonds in late 2012 or next year, Chief Financial Officer Stanislav Ploschenko said.
Mechel (MTLR), which holds a B1 rating from Moody’s Investors Service, is considering seeking credit assessments from other companies before the possible transaction, Ploschenko said in an interview in Moscow today.
“Our ability to sell eurobonds at an appropriate rate is limited by the negative outlook for our credit rating right now,” he said.
Mechel announced late yesterday a revised business strategy that aims to reduce the mining company’s $9.3 billion in net debt, partly through asset sales. The company has the world’s second-largest reserves of coking coal, an ingredient in steelmaking.
In April and May, Mechel arranged to extend 35.6 billion rubles ($1.18 billion) of debt with state-run OAO VTB and OAO Gazprombank. It also agreed on $500 million of refinancing with Gazprombank and sold 15 billion rubles of bonds to VTB Group, according to Ploschenko.
“The interest rates and the collateral required by the new loans are higher than we had, reflecting their longer maturity, but not significantly,” Ploschenko said.
Mechel pledged a 25 percent stake in the Korshunov mine to Gazprombank as collateral, Mechel said in its annual report, while the loan has an interest rate of 7.5 percent. Other assets pledged to banks include 55 percent stakes in its Yakutugol and Southern Kuzbass units.
Mechel will continue talks with lenders to extend debt maturity deadlines as it seeks to reduce the ratio of its debt to earnings before interest, taxes, depreciation and amortization to 2-to-1 in 5 years, according to the CFO. It also may sell additional ruble bonds. “This instrument is very easy, covenant-free and doesn’t need collateral at all.”
The coal producer has about $1.6 billion of short-term debt, and has some $2 billion in credit lines and cash in place to cover that, Ploschenko said. Russian banks and domestic bonds accounted for 73 percent of Mechel debt as of May 10, according to a company presentation.
“It’s true that the major part of our debt is from state banks, but it is just because state banks happened to be the largest in Russia and we, as any other Russian company, historically have a strategic relationship with them,” Ploschenko said. The company sees no risk arising from his position, he said.
Financing from international banks has also become harder to arrange after the European crisis reduced their ability to make loans and increased the banks’ funding costs, Ploschenko said.
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