OAO Mechel, Russia’s biggest producer of steelmaking coal, is discussing with the government and local banks a new plan to help the company cut its debt of about $9 billion, according to people with knowledge of matter.
The proposal may involve combining some of Mechel’s assets with steel plants and mines owned by metal producer Evraz Plc and state-owned Vnesheconombank, two of the people said, asking not to be identified as the talks are private.
The plan, put forward by one of the banks, does not have support from the government so far, the people said. While Evraz is part of the proposals, the company hasn’t been involved in the discussions, two other people said.
Mechel, which employs about 70,000 people, is among Russia’s most-indebted mining companies. Like its global peers, the Moscow-based company has been confronted by falling prices for coking coal as demand for the raw material from steelmakers weakened in the face of slower economic growth.
Mechel has already held talks with the government, Vnesheconombank, known as VEB, and lenders OAO Gazprombank, OAO Sberbank and VTB Bank over plans for a 35 billion-ruble ($1 billion) bridge loan and the subsequent sale to VEB of 180 billion rubles of bonds convertible into Mechel stock. Those deliberations were confirmed by Russian Economy Minister Alexei Ulyukayev on June 19.
The latest proposal to set up a new company that holds Mechel assets, excluding its Elga coal deposit and international units, some of Evraz’s assets and VEB’s OAO Amurmetall steel plant is an alternative to the possible convertible bonds sale, the people familiar with the talks said.
The plan calls for the backing of a group of Russian and foreign investors, who would get a 50 percent stake in the new company, Kommersant reported earlier, citing unidentified people. The group would pay for the assets with cash, debt and shares.
Mechel may get a 20 percent stake and $7.5 billion in cash to pay down debt, the newspaper said. Evraz, which had $6.5 billion of debt at the end of 2013, may raise $2.5 billion through this transaction, Kommersant said.
The press services of Evraz and VEB declined to comment. A spokeswoman for Mechel said the company has no information about talks on changes to its ownership structure.
Kirill Chuyko, an analyst at BCS Financial Group in Moscow, said he expected the plan will fail to win agreement from all the parties.
“The proposal doesn’t seem viable as it won’t resolve all of Mechel’s debt problems, and the benefits to Evraz aren’t extensive enough,” Chuyko said by phone.
Russia considered a plan to combine seven mining companies, including Evraz and Mechel, in 2009 during the financial crisis as they grappled with debt burdens. The proposal failed because the companies didn’t agree to the terms.