(Corrects reference to voting rights in 11th paragraph of story originally published Oct. 2)
OAO Mechel (MTL:US), Russia’s biggest producer of steelmaking coal, may complete talks on $1.5 billion of debt refinancing by the end of November, Chief Financial Officer Stanislav Ploschenko said.
Mechel has also asked for a 12-month grace period on repayments on a $2 billion loan arranged with a group of banks in 2010. Mechel aims to reach an agreement with banks within two months that will retain the other terms of the loan, including the repayment of interest, Ploschenko said on a conference call today. Mechel owes about $1.3 billion of the loan amount, he said.
Mechel’s net debt fell to $8.4 billion in the second quarter from $9.2 billion in the first three months, it said today in a statement. Debt may rise (MTL:US) by about $200 million when the company consolidates a portion of assets from Estar Group, Ploschenko said today on a conference call.
Mechel said in May it may seek to seize control of Estar if it is unable to pay a loan guaranteed by Mechel units before the end of September. Moody’s Investors Service downgraded Mechel in August on concern that a potential default by Estar would add $800 million to Mechel’s debt.
The company doesn’t plan to consolidate all of Estar’s assets into Mechel, Ploschenko said. Management recommended that Estar’s debt be extended by 9 months, and that most of its assets be sold during that time, he said.
An amount of $187 million of the loan will be converted into shares in three Estar assets, he said. These include Rostov electro-metallurgical plant, a steel-product distribution division and the Lomprom scrap producer, Ploschenko said. The Rostov plant could be consolidated into Mechel (MTLR) in January.
Mechel pays an average rate of about 7 percent to 10 percent on its short-term ruble debt, Ploschenko said today.
Mechel swung to a first-quarter net loss of $823 million from a profit of $218 million in the previous three months, it said today. Excluding the impairment of some assets and provisions for amounts owed by related parties, the loss would be $177 million, it said.
“This suggests that Mechel is once again at risk of breaching its main debt covenants,” Kirill Chuyko, Moscow-based joint head of equity research at BCS Financial Group, said in a note.
Mechel may skip dividend payments on its preferred shares this year, given the weak set of results, Chuyko said.
In the event of no dividends being paid, preferred shares will carry voting rights under the company’s charter, Ploschenko said. In the absence of net income, the company still can pay dividends, in which case the preferred shares won’t carry voting rights, he said.
Separately Mechel said it plans to produce 29.5 million metric tons of coal this year, while its Elga project will be able to run production at “industrial scale” next year and produce about 4 million tons.
Mechel fell 3.5 percent to 218.10 rubles by the close in Moscow today.
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