Bloomberg News

Mechel Rebounds as CFO Moots Financing: Russia Overnight

April 10, 2013

OAO Mechel (MTL:US), Russia’s second-most indebted mining company, is climbing from a four-year low on prospects state-backed lenders will give about $3 billion in financing to the coal producer.

“We expect some good news on refinancing within the next month, by mid-May,” Chief Financial Officer Stanislav Ploschenko in an interview in New York yesterday. The company may agree on as much as $2 billion in financing from Russia’s biggest government-run banks and anticipates securing a loan of more than $1 billion from state development lender Vnesheconombank later this year, he said.

American depositary receipts of Mechel (MTLR) jumped 4.6 percent to $4.76 in New York yesterday on trading volumes more than double the daily average over the past three months. Russia’s largest producer of coal for steelmakers led gains on the Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian stocks in the U.S., which climbed for a third day. Futures on Moscow’s RTS Index rallied 0.2 percent to 141,260.

Mechel has total debt more than five times its market value after loading up on assets before a slump in global coal prices. The Moscow-based company already has loans and credit lines from government-run VTB Group, Russia’s second-largest bank, and OAO Gazprombank, the lending unit of the state gas export monopoly. Mechel signed a 40 billion-ruble ($1.3 billion) loan agreement with VTB to help repay short-term debt due this year, according to a statement issued yesterday.

The company’s “first goal” will be to refinance about $2 billion of debt coming due this year, Ploschenko said yesterday.

Shares Rally

Total debt rose to $9.7 billion as of Sept. 30 from $565 million at the end of 2004, according to the company’s website. Mechel’s market capitalization fell to a record-low 56 billion rubles in Moscow April 8, from 405 billion rubles in February 2011, data compiled by Bloomberg show.

Mechel ADRs have lost 31 percent in 2013, the worst performance on the Bloomberg Russia-US gauge, which is down 2.9 percent. Shares in Moscow rallied 7.3 percent yesterday to 148.20 rubles, or $4.80, paring this year’s retreat to 27 percent.

Ploschenko said that the loan from Vnesheconombank, also known as VEB, would go toward Mechel’s Elga field, Russia’s biggest coal development in the nation’s Far East. OAO Alfa Bank’s Barry Ehrlich, ranked first among the 23 analysts (MTL:US) who cover Mechel ADRs based on total returns, said last week that he is considering an upgrade of the stock because of the prospect of state assistance. He has rated Mechel the equivalent of sell since November 2011.

Mechel-Mining

Mechel may drop plans to sell 25 percent of its Mechel- Mining unit, people with knowledge of the matter said yesterday, asking not to be identified as a final decision hasn’t been reached. Asian companies Posco, STX Group and Baosteel Group Corp. have looked at the assets though negotiations haven’t started, the people said.

The sale of Mechel-Mining’s assets will be considered “in the context of our progress in refinancing the debt,” CFO Ploschenko said yesterday. “The aim is to get the highest price possible for the assets.”

The RTS Volatility Index, which measures expected swings in the stock futures, declined 1.1 percent to 18.95. The Market Vectors Russia ETF (RSX:US), the largest exchange-traded fund dedicated to Russian equities, increased 0.2 percent to $27.64 in New York yesterday.

Russian central banker Sergey Shvetsov renewed his call for stronger laws to protect minority investors at a VTB investment conference in New York yesterday.

‘Protect Shareholders’

State-run OAO Rosneft, Russia’s biggest oil company, bought crude producer TNK-BP for $55 billion last month. Rosneft’s plan not to buy out minority stakes in the company, to borrow money from it and possibly end its dividend policy sent shares of TNK- BP tumbling. Investors including Prosperity Capital Management, the largest Russia-focused fund manager, said Rosneft is putting the nation’s reputation at risk.

“It is the responsibility of Rosneft management to protect minority shareholders,” Bank Rossii Deputy Chairman Shvetsov said yesterday, echoing comments made at a Moscow Exchange conference April 4. “The legislation should be changed to protect minority shareholders in the future.”

Rosneft’s treatment of minorities “wasn’t good for the market,” Evgeny Fetisov, chief financial officer of the Moscow Exchange, said April 8 in an interview in New York.

ADRs of OAO Mobile TeleSystems (MBT:US), Russia’s biggest mobile provider, climbed 2.8 percent to $20.44 in the U.S. yesterday, the steepest one-day advance since Feb. 27. VimpelCom Ltd. (VIP:US), the No. 3 provider, added 0.3 percent to $11.98.

‘Add Value’

VTB Group, which took over Tele2 (TEL2B) AB’s local unit on April 4, hasn’t been approached by anyone about selling the asset, Yuri Soloviev, first deputy president of the bank, said in an interview yesterday in New York.

“We are a financial investor and will be exiting eventually” from Tele2, Soloviev said, declining to comment on when and how it would sell Tele2. “We are not in talks with anyone over the company. We want to develop this asset, to add value to it and are open for any options.”

VTB is considering partnering with another company for Tele2 and may pick a partnership by year-end, he said. Tele2 may apply for 3G and 4G licenses, Soloviev said. He declined to comment on whether the company may be merged with OAO Rostelecom (ROSYY:US), the country’s biggest fixed-line operator. Renaissance Capital and Otkritie Financial Corp. have said VTB may sell Tele2 Russia to Rostelecom.

‘Increasing Competition’

The bank will decide on how it wants to develop Tele2 within the next three to four months, Soloviev said.

“Russia must be committed to increasing competition in its mobile market,” he said yesterday.

Mobile TeleSystem, which vowed last week to fight the buyout after Stockholm-based Tele2 rebuffed its joint bid with VimpelCom, will seek talks with the VTB, Chief Financial Officer Alexey Kornya said in an interview April 8.

Ruble futures showed the currency weakening 0.4 percent to 32.01 per dollar in U.S. hours. Russia’s ruble gained 0.4 percent to 30.884 per dollar yesterday and rallied 0.6 percent to 35.1403 against the dollar-euro basket used by the central bank to manage swings that erode exporter competitiveness.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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Companies Mentioned

  • MTL
    (Mechel)
    • $1.84 USD
    • 0.00
    • 0.0%
  • RSX
    (Market Vectors Russia ETF)
    • $26.79 USD
    • 0.06
    • 0.22%
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