Evraz to Cut Debt by Up to $1.5 Billion After Steel Collapse

  • Russian steelmaker will use free cash flow to reduce debt
  • No plans to sell assets or delist the company, Frolov said

Evraz Plc, Russia’s second-largest steelmaker, plans to reduce debt by as much as $1.5 billion to cope with declining profits and a collapse in steel prices.

The company will use its available cash to lower debt by about $1 billion to $1.5 billion, Chief Financial Officer Pavel Tatyanin said by phone from Moscow. Evraz has already paid back about $1.4 billion during the last two years and will work to continue reducing debt, he said.

Metal companies globally are struggling under high levels of debt accumulated during the commodities boom of the 2000s. Now, with steel prices stuck at the lowest in more than a decade, the biggest producers such as ArcelorMittal are writing down asset values and looking for ways to raise cash to pay off debt.

Evraz’s net debt stood at $5.35 billion at the end of 2015.

Earnings before interest, taxes, depreciation and amortization declined to $1.44 billion in 2015, missing the average estimate from analysts surveyed by Bloomberg. The company’s net debt to Ebitda ratio, a measure of indebtedness, jumped to 3.7 from 2.5 at the end of 2014.

Challenging Environment

“In response to the challenging environment, Evraz introduced a program of countermeasures” to improve the costs, Chief Executive Officer Alexander Frolov said in a statement. In 2015, those programs contributed $374 million to Ebitda. Free cash flow of $799 million allowed the company to reduce debt by $465 million, he said.

The possibility of worsening business conditions led Evraz to get additional bank support. If markets deteriorate over the next year, it may face a breach of loan covenants for $750 million and that could eventually trigger a default for other debt instruments, according to the annual report on Tuesday.

In the event that happens, the company agreed to a $300 million “back stop facility" with a major bank to serve as a safety net. It may also ask for changes to its covenants and a waiver from lenders if the situation declines.

Debt Plans

The company currently isn’t in breach of any covenants and has enough funds to cover debt repayments in 2016, Tatyanin told reporters on Tuesday. Evraz is weighing options to refinance debt due in 2017 and 2018, he said. It has $1.4 billion of debt due this year.

Evraz plans to increase the share of ruble debt as the domestic currency now plays a larger role in the revenue structure, Tatyanin said by phone. Previously, it was swapping all the ruble debt into dollars, but now the swap market has narrowed and ruble rates are set to decline, he said. Evraz had 91 percent of debt denominated in U.S. dollars as of the end of 2015.

Unlike some competitors, Evraz doesn’t plan to sell assets to pay down debt because all the assets are in key businesses, Frolov said by phone. There are also no plans to delist the company and take it private, according to Frolov, who is also part of a group of co-owners.

"The current situation on the commodities markets, which led to decline of the value of the commodities companies, won’t last forever," he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE