Mechel Soars as VTB Says Russian Coalmaker May Avoid Bankruptcy

Updated on

OAO Mechel surged the most in six weeks after VTB Group’s Chief Executive Officer Andrey Kostin said Russia’s largest coking coal producer may still avoid bankruptcy.

Mechel shares jumped as much as 27 percent to 89.20 rubles in Moscow after Kostin said he was open to a resolution with the mining company, which has more than $6 billion in total debt mostly to state-controlled VTB, OAO Sberbank and OAO Gazprombank. VTB, Russia’s second-biggest lender, plans to file a bankruptcy claim against Mechel, according to an official statement published in Kommersant newspaper last week.

“The door is open and if there’s a possibility to resolve it, we will,” Kostin said in an interview in London on Wednesday. “We need a real program aimed at consistent payments of debt, and not just some five to 10-year delay, where we do not see either sources of financing or any progress on the present situation.”

Kostin’s comments added fuel to a rally that has more than tripled the value of Mechel’s shares this year amid speculation the company will strike a deal with banks to prevent insolvency. The stock slumped 63 percent in 2014, including to a record 15 rubles on Sept. 26, after suspending debt payments as prices for coal used for steel-making slid.

The Moscow-based company, controlled by the former Russian billionaire Igor Zyuzin, made several debt-restructuring proposals since the start of 2014, including selling bonds that are convertible to equity to state-backed lenders, but is still trying to find a way to meet its obligations.

Debt Talks

Kostin said he plans to meet Zyuzin next week and added that no agreement has been made yet. VTB isn’t seeking to take Mechel’s assets, he said. In a statement on its website on March 7, VTB said the claim against Mechel may be filed in a month, and until that happens the bank is open to an agreement with the miner.

“This is not a game, not some threats, this is a real situation,” Kostin said on Wednesday.

Mechel shares climbed 26 percent, the most since Jan. 29, to 88 rubles by the close in Moscow as the volume rose to 3.3 times the three-month daily average. The ruble’s 46 percent plunge against the dollar in 2014 helped Mechel shave about $2 billion from total debt, according to a presentation posted on its website.

The company said in December that it had agreed with Gazprombank on a “compromise” debt restructuring and submitted a draft of the proposal to VTB and Sberbank. The new schedule of repayments was discussed with VTB recently, Arseniy Palagin, spokesman said in March 6. He declined to comment on Wednesday.

“It’s unlikely that VTB has the real aim to bankrupt Mechel as it’s not in anyone’s interests,” Kirill Chuyko, the head of equity research at BCS Financial Group, said by phone. “The company and its owner will have to accept some type of compromise with the banks.” .