Mechel plans asset merger with Evraz to repay $9bn debt

6 July 2014 (Last Updated July 6th, 2014 18:30)

Russian mining and metals company Mechel is reportedly planning to merge its assets with those of metal producer Evraz and state development bank Vnesheconombank (VEB), to reduce its $9bn debt.

Elga

Russian mining and metals company Mechel is reportedly planning to merge its assets with those of metal producer Evraz and state development bank Vnesheconombank (VEB), to reduce its $9bn debt.

The proposal includes the merger of VEB's Amurmetall steel plant and some assets of Evraz and Mechel, but excludes the latter's Elga coal deposit and international units, Bloomberg reported citing two unidentified sources.

Mechel has been finding ways to reduce its $8.6bn debts, as falling coal prices and the global slow down of steel production have hit the company's performance.

In June, the Russian Government said that it was considering a $5bn bail-out for the company through the purchase of convertible bonds by VEB.

"The Russian Government said that it was considering a $5bn bail-out for the company through the purchase of convertible bonds by VEB."

Economy Minister Alexei Ulyukayev said: "The main thing being discussed is a bridge loan and then, the transfer of rights to demand collateral to VEB. It is possible that these rights will come through concrete convertible bonds."

The bridge loan is expected to be advanced by three state banks, Sberbank, VTB and Gazprombank.

The latest assets-merger plan is being proposed by the company as an alternative to convertible bonds.

The plan does not have the support of the government and Evraz was not involved in discussions, sources said. The company has debts of $6.5bn.

If the deal is successful, Russian and foreign investors would own 50% of the new company while Mechel would own 20%, reported Kommersant.

Mechel would also gain $7.5bn in cash, through which it would repay its debt. Evraz would receive $2.5bn.


Image: Mechel's merger plan excludes the Elga coal deposit in Russia. Photo: courtesy of Mechel.

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