By John Helmer in Moscow
The Mechel steel and coal group has failed for the second time in two months to agree with its bankers on repayment of a year-old $1.5 billion loan. The news, first issued in Moscow as trading commenced on the New York Stock Exchange, where Mechel is listed, dropped the share price by 2% by mid-afternoon.
The obligation was first undertaken for a one-year term in March of 2008, when Mechel bought the chrome miner and refiner, Oriel Resources. The debt became overdue on March 20, and was extended for 50 days until May 15.
Before that deadline, the company told Reuters it was thinking of issuing unsecured bonds worth a total of 45 billion roubles ($1.35 billion). This was not announced officially by the company, which also did not tell Reuters the purpose of the bond issue.
On May 14, a press leak by the company to Reuters claimed that Mechel would meet its refinancing deadline by paying $500 million in cash, and rolling over the balance of $1 billion on a longer-term arrangement. The cash outlay was reported as coming from Gazprombank. This indirectly state-owned bank has been reported, again without confirmation from Mechel, as having loaned Mechel $1 billion some time in the first quarter.
A report by Renaissance Capital to brokerage clients on May 15 claimed “we expect an official announcement from the company on the debt restructuring situation today.” No disclosure materialized. At the time, according to Renaissance Capital analyst Boris Krasnojenov, the reported claim that Mechel had resolved its refinancing problem was “positive for Mechel provided the refinancing is actually agreed upon… we identified successful refinancing of Mechel’s $1.5bn bridge loan as one of the key drivers of the stock. Mechel’s ADRs on NYSE were up 5.5% yesterday [May 14]. The positive impact of the news will largely depend on the details of the refinancing scheme.”
The May 14 press leak claimed Mechel had “agreed on the fundamental parameters of the loan with the coordinating committee, and now the agreement must be signed with the entire syndicate, and the conditions could still be adjusted.”
Two weeks later, Mechel has now issued the announcement of “a two month extension of its bridge loan taken to finance the acquisition of Oriel Resources Ltd. (Great Britain). On May, 22, 2009, following negotiations with the banking syndicate which provided Mechel with a one-year loan for financing of Oriel Resources Ltd. (Great Britain) acquisition, an agreement for a two month payment term extension was reached. The new payment date is July, 15, 2009.”
The press release goes on: “The Company and creditor banks representatives agreed on the basic principles of the bridge loan refinancing for a term of up to 3.5 years, and the extension period will be used to execute the agreement. At the moment the participating banks of the syndicate are in the process of internal procedures performing in order to get the final approval of this agreement conditions.”
Officially, the Mechel spokesman Ilya Zhitomirsky will not comment on the loan negotiations, nor explain why they have been protracted beyond the deadlines previously set. Mechel owner and chief executive Igor Zyuzin has ordered all company executives to stay silent today, despite the past press leaks claiming they had already reached agreement on terms with their bankers.
Moscow analysts have reported that the terms still in conflict between Zyuzin and the banks is the interest rate to be charged for the rollover, and the security over shares demanded by the banks. Although refinancing funds have been offered to the company from the state bailout bank VEB, it is believed the security demanded — the chrome mine and refining assets of Mechel’s Oriel Resources division, plus 50% of Mechel’s other Russian mining assets — was too tough for Zyuzin to accept.
Gazprombank was also asked to confirm the amount and terms on which it is participating in Mechel’s refinancing. The house spokesman refused to say.