Page 134 - RusRPTNov19

reportedly found a buyer for the asset, which has some of the largest reserves of coking coal in the world. Gazprombank made a buyout offer to Mechel, which confirmed it will buy the 34% in Elga, to add to the 51% it already controls, without disclosing how it intends to finance the deal. Kirill Chuyko of BCS Global Markets commented to Reuter that the Elga deal will basically be a REPO deal, under which Mechel will have to refinance its debt to Gazprombank via another bank. In August 2019 Mechel renewed negotiations with its main creditor banks, doubting its ability to service debt in 2020, but not disclosing the new negotiated deadlines and terms. As of end of 1H19 Mechel's net debt stood at RUB411bn ($6.2bn) or 6.4x to Ebitda. Out of the total 65% is denominated in rubles. The liabilities exceed the assets by RUB222bn. Previous reports suggested that Mechel proposed to its creditor banks extending its debt coverage from 2020-2024 to 2024-2026. Its main creditors are state-controlled Sberbank, VTB Bank, and Gazprombank (RUB49bn, RUB148bn, and RUB143bn of debt, respectively).
Russian oligarch Igor Zyuzin has asked the government for a multi-mn dollar refund to compensate Mechel for a steel plant lost by his firm in Eastern Ukraine, according to Russian daily Vedomosti . Zyuzin’s troubled mining and metals giant Mechel is also trying to negotiate a huge loan restructuring as the company says it cannot afford to make debt repayments to Russia’s largest state banks. The refund request relates to the Donetsk Electrometallurgical Plant, bought by Mechel for more than $500mn in 2009, but seized by pro-Russian Donetsk People’s Republic local authorities in 2016 during the war with Ukrainian government forces in Eastern Ukraine. According to the paper, Zyuzin wrote to deputy prime minister Dmitry Kozak this summer requesting 18mn rubles ($280mn) in compensation. The plant previously produced around onemn tonnes of steel a year, although production at the site was halted in December 2012 due to “unfavorable market conditions,” a statement on Mechel’s website says. Zyuzin also told deputy prime minister Kozak that Mechel’s cash flow problems mean it can only afford to repay the interest — not the outstanding debt — on its estimated $5.5bn stock of loans to state banks.
Russian steel major MMK ( Magnitogorsk Iron and Steel Works) posted 3% quarter-on-quarter increase in steel output in 3Q19 to 3.2mn tonnes, coming in lower than expected due to completion of works at its main output site in Magnitogorsk. At the same time steel sales remained almost flat q/q at 3.1mn tonnes as "higher shipments in Russia were partly offset by 5% fall in Turkish division sales stemming from challenging market environment," BCS Global Markets commented on October 15. In the reporting quarter the average realized price decreased by 1% q/q to $616 per tonne , which came in below our expectations of $636 tonne. The update follows a strong 2Q19 financials and MMK's paying 200% of its free cash flow in dividends .
Magnitogorsk Iron and Steel Works (MMK) has released a 3Q19 trading update showing slightly higher q/q sales volumes and a marginal decline in the average realized price. We expect EBITDA to come in up 7% q/q at $530mn on lower costs, driven by a drop in coal prices (for a 27% margin), and leveraged FCF to be strong at $250mn (for a 4% yield) due to a working capital release. We anticipate a 100% dividend payout from LFCF, in line with the dividend policy. Slight q/q growth in sales driven by domestic demand. Finished product sales grew 1.4% q/q to 2.9mn tonnes in 3Q19, boosted by 7% higher sales of HRC. Long product sales were up 4.1%, supported by strong demand for construction products. The share of HVA products
134 RUSSIA Country Report November 2019 www.intellinews.o