OAO Mechel (MTL), Russia’s biggest coking coal producer, will proceed with a plan to extend debt maturities after Moody’s Investors Service lowered its credit rating, Chief Financial Officer Stanislav Ploschenko said.
Mechel is looking to push out maturities without causing a surge in its borrowing costs and would scrap the plan if it becomes too expensive amid “tight” international capital markets, Ploschenko said. He declined to comment on Moody’s move on Aug. 17 to downgrade Mechel one level to B2, or five levels below investment grade.
“We will not sacrifice the economics just to get a longer tenor,” Ploschenko said in an e-mailed message from Moscow on Aug. 17. “We aim to extend the maturity, which may probably entail certain refinancing, including in foreign currency.”
The coal producer’s shares fell 1.7 percent to 209.70 rubles by 1:44 p.m. in Moscow, the lowest intraday price since Aug. 3. The stock was the worst performer on the Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies listed in the U.S. last week, plunging 7.5 percent. The benchmark index fell 0.4 percent to 94.60 on Aug. 17 and was little changed from a week ago. The RTS stock-index futures gained 0.7 percent to 142,150 on Aug. 17.
Mechel, Russia’s biggest producer of coking coal, has to repay about $1.4 billion in bonds and loans by the end of the year and $1.9 billion in 2013, according to a June 20 presentation. The company said in June 20 that first-quarter profit fell 29 percent as coal prices dropped and mines were halted for safety checks.
Mechel’s ruble bonds due in June 2013 fell, raising the yield 42 basis points to 13.41 percent, the highest since July 6. The yield on Mechel (MTLR)’s bond puttable in 2015 jumped 38 basis points to 13.91 percent.
“We’ll look for the optimal combination of tenor and interest rate,” Ploschenko said. “We will try to avoid short- term debt for its cheapness anyway, as it is not advisable in the market with volatile liquidity.”
Mechel’s $2 billion syndicated loan, which the company started to repay in June 2011, has shrunk to “slightly more than $1.5 billion due to monthly amortization,” Ploschenko said.
The company, which also produces steel and pig iron, nickel and chrome, will spend $593 million to repay the first tranche of the loan this year and next, Mechel’s press service said by e-mail on Aug. 17. It will spend $1.2 billion to repay the second tranche of the loan in 2012 through 2015, it said.
“All issues regarding covenants on the syndicated loan have been settled,” Ploschenko said, declining to comment further. “The payments are made regularly and on schedule.”
‘Major Investor Concern’
Moody’s Investors Service cut Mechel’s credit rating from B1 with a stable outlook, citing declining coal and steel prices as well as the company’s refinancing risk. The rating company also cited risks associated with the potential consolidation of Estar Group, which owns seven small steel mills, according to the statement.
“Mechel’s debt is a major investor concern,” Denis Gabrielik, an analyst at Otkritie Financial Corp., said by phone from Moscow on Aug. 17. “The very possible consolidation with Estar is their second-biggest concern. If that happens, Mechel’s target price would be reduced.”
Mechel’s ADRs traded at a 1.4 percent discount to the company’s Moscow-listed shares on Aug. 17, the most since Aug. 2. One ADR represents one ordinary share.
Russia ETF Falls
The Market Vectors Russia ETF (RSX), the biggest U.S.-traded fund that holds Russian shares, fell 0.5 percent to $27.89, trimming the weekly decline to 0.1 percent. The RTS Volatility Index, which measures expected swings in stock futures, rose 2 percent to 30.24.
VimpelCom Ltd. (VIP) jumped 15 percent last week, its biggest weekly gain since listing in New York in April 2010, after Russian billionaire Mikhail Fridman’s Altimo increased its stake in VimpelCom. The stock gained 7.8 percent to $10.80 on Aug. 17, the highest since Apr. 9.
Oil for September delivery climbed for a fifth day on the New York Mercantile Exchange, increasing as much as 52 cents to $96.53 a barrel, after gaining 0.4 percent to $96.01 a barrel on Aug. 17, the highest settlement since May 11. The contract expires tomorrow.
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