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Severstal Sells $475 Million of Convertible Bonds to Cut Costs

Sept. 19 (Bloomberg) -- OAO Severstal, Russian billionaire Alexey Mordashov’s steelmaker, said it sold $475 million of convertible bonds to cut borrowing costs and fund its business.

Severstal issued five-year notes with a three-year put option at a yield of 2 percent, it said in a statement. The bonds may be converted into Severstal’s global depositary receipts at a price of $19.08, 45 percent higher than the stock traded today.

The Cherepovets, Russia-based company has $5.5 billion of debt outstanding, according to data compiled by Bloomberg, and pays interest of 5 percent on its existing fixed-rate dollar bonds due in 2017. Chief Financial Officer Alexei Kulichenko said last month the company’s waiting for a “good window” to sell local currency bonds under its 80 billion-ruble ($2.5 billion) program.

The convertible securities “allow the company to reduce borrowing costs giving the ability for bondholders to swap bonds for shares at a fixed price in the future,” said Andrey Kulakov, an analyst at UralSib Capital in Moscow.

Citigroup Inc. and Deutsche Bank AG managed the sale.

“Using this instrument allows us to significantly reduce debt costs and effectively use treasury stock from the company’s balance sheet,” according to an e-mailed statement from Severstal.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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