Mechel Rebounds as Debt Talk Quells Bankruptcy Concern

OAO Mechel is whipsawing investors as reports that the coal producer may strike a deal with creditors drove a 22 percent gain in the shares on Wednesday in New York, just two days after they tumbled 32 percent amid bankruptcy speculation.

Mechel jumped to $1.26, rebounding from a seven-week low, after Interfax news service reported the coal producer “made constructive proposals on debt” to lender VTB Group. It was the best performance on the Bloomberg Russia-US Equity Index, which climbed 3.3 percent. Price swings in the shares reached a six-year high.

The company, which owes more than $6 billion mostly to state-controlled VTB, OAO Sberbank and OAO Gazprombank, is seeking lower interest rates and delayed payments, Vedomosti newspaper reported Tuesday. President Vladimir Putin asked the government to consider helping the company develop its largest field, Forbes said, signaling political support. Mechel sank on Monday after Prime news agency reported that Economy Minister Alexei Ulyukayev said there was “no other option” but bankruptcy.

“Political will is all it takes for government-controlled creditors and Mechel to agree on debt-restructuring terms,” Sergey Donskoy, an analyst at Societe Generale SA, said by phone from Moscow. “While the debt deal is reachable, Mechel’s price swings will remain wide because its debt is huge and the market capitalization is tiny in comparison.”

Five-day volatility on the American depositary receipts rose to 389 percent, the highest level since December 2008. The ADRs have posted gains or losses of more than 11 percent in five of the past nine days. They plunged 25 percent in the two days following Mechel’s confirmation March 8 that VTB planned to file a bankruptcy suit, then surged 14 percent on March 11 as VTB President Andrey Kostin said he was open to a resolution.

‘News Flow’

“Negotiations on debt restructuring terms with state banks are ongoing, and the current share-price volatility is the result of all the news flow around the talks,” Dmitry Glushakov, analyst at Alfa Bank in Moscow, said by e-mail. “The chance for parties to come to a positive decision is high.” Mechel benefited from the ruble’s devaluation and should be able to service its debt, he said.

Putin asked that the government look into options to assist Mechel in developing its Elga field in Siberia, Forbes reported, citing unidentified officials. Putin spokesman Dmitry Peskov told Forbes he wasn’t aware of the situation. VTB and Mechel are continuing to work to find a solution, Interfax reported, citing VTB’s press office.

Coal Prices

Kostin told reporters at a conference in Moscow Thursday that he won’t be commenting further on Mechel because the central bank had complained. The company’s Moscow-listed stock was 5 percent stronger at 81.89 rubles as of 10:45 a.m.

Mechel, which was included on a list of “systemically important” companies that Russia says deserve support under a government plan to stabilize the economy, said in a March 6 statement that it is “convinced the situation can be resolved via talks.” Arseniy Palagin, a Mechel spokesman in Moscow, declined to comment on the talks when contacted by Bloomberg News by phone Wednesday.

The company, whose debt is 40 percent denominated in rubles, has taken advantage of the currency’s 46 percent drop last year. It cut total debt to $6.4 billion from $8.6 billion, Industry Minister Denis Manturov said on March 3, according to a RIA Novosti report.

Steel Slump

“Our base case is that the company will most likely avoid bankruptcy as its debts will be restructured,” George Buzhenitsa, an analyst at Deutsche Bank AG in Moscow, said by phone. “The restructuring will provide relief, but won’t solve all of the Mechel problems, in the absence of meaningful recovery in steel and raw-materials prices, which we do not envisage” in the next between 12 and 18 months, he said.

Prices for steelmaking coal are down 12 percent this year after a 28 percent slide in 2014. Steel output in China will shrink this year as consumption has peaked, a representative of the China Iron & Steel Association said March 11.

The S&P GSCI Index of 24 commodities increased 2.3 percent, trimming this year’s loss to 5.3 percent, after Federal Reserve officials indicated interest rates will rise at a slower pace than previously estimated. A weaker U.S. currency makes dollar-denominated raw materials more attractive.

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