Russia’s Micex Slumps Most in Three Months as Mechel Tumbles

Russian stocks fell the most in three months as OAO Mechel, the nation’s biggest coking-coal producer, tumbled to the lowest level since 2008.

The Micex Index lost 2.2 percent, the most since Aug. 15, to 1,466.82 by the close in Moscow, after yesterday recording the steepest increase in three weeks. Mechel, which also manufactures steel, plunged 41 percent to 57 rubles. That’s the lowest level and the biggest decrease since December 2008, data compiled by Bloomberg show. OAO Severstal, Russia’s second-largest steel producer, slid 6.1 percent to 269 rubles.

Moscow-based Mechel is being punished in the bond markets as it seeks to obtain a waiver from debt covenants. Chief Financial Officer Stanislav Ploschenko said Nov. 11 that talks with banks on covenant holidays are “going well” and “should be completed by the end of November.” Mechel is the worst performer on the benchmark this year, with a drop of 72 percent.

“We’ll know the truth after the announcement of results of the talks between Mechel and banks,” Oleg Popov, who manages $1 billion of securities for Allianz Investments, said by phone from Moscow. “It’s hard to say if this is an exit of insiders or speculative games.”

The Russian company, whose net debt was $9.55 billion as of June 1, has as much as $2.48 billion due next year, according to a June presentation on its website. Today’s sell-off is “purely speculative” and covenant talks are on schedule to be completed by the end of the month, Mechel spokesman Arseny Palagin said by phone.

Mechel Bonds

Russia’s Micex was the biggest decliner among markets in developing Europe and Africa tracked by Bloomberg today. Mechel shares also slumped in New York, losing 18 percent to $2.36 by 10:55 a.m. in the city, the lowest level since October 2004.

The yield on Mechel’s 5 billion rubles ($152 million) of February 2021 bonds, which investors can force the company to redeem next year, surged to a record-high today, data compiled by Bloomberg show.

“This looks like a margin call,” Kirill Yankovskiy, director for equity sales at UralSib Capital in London, said by e-mail. “Most likely someone has a clear understanding that it’ll be harder for Mechel to refinance covenants this time.”

China Meeting

Basic materials and utilities shares led declines among nine industry groups on the Micex, losing 3.5 percent and 4.5 percent respectively on average, as most metals fell on the London Metal Exchange. Chinese leaders at a meeting elevated the role of markets in the nation’s economic strategy, while stopping short of unveiling detailed policy shifts. Russia’s metal producers export to China.

“Investors expected more concrete market proposals from the Chinese leadership meeting,” Aleksei Belkin, who helps manage about $4.4 billion in assets as chief investment officer at Kapital Asset Management LLC in Moscow, said by phone. “Metal stocks are particularly sensitive to Chinese news, the market is reacting to the expectations of global growth.”

OAO Magnitogorsk Iron & Steel fell 6.1 percent, the most since May 2012, to 7.526 rubles. OAO Novolipetsk Steel tumbled 5.4 percent to 50.35 rubles while the stock retreated as much as 5.9 percent in London trading.

Brent climbed 1.1 percent to $106.99 in the U.K. capital, while West Texas Intermediate crude oil traded 0.7 percent higher at $93.65 in New York. Russia receives about half of its budget revenue from oil and natural gas sales.

The RTS Index slid 2.1 percent to 1,406.92. Russian equities have the cheapest valuations among 21 emerging economies monitored by Bloomberg, with shares on the Micex trading at 4.2 times projected 12-month earnings, compared with a multiple of 10.3 for the MSCI Emerging Markets Index.

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