“The total of VTB Bank’s loaned funds will be used to refinance Mechel Group’s current debt, so this loan will not increase its credit portfolio,” the company announced in a statement on Wednesday.
Mechel said roughly $800 million of the funds would be used to pay back short-term debt due in 2013, including loans from VTB Bank and Mechel’s ruble bonds.
“This will enable [Mechel] to significantly improve its liquidity and bring down the risk of refinancing in the next 12 months,” the statement said.
The loan has a 15-month grace period followed by quarterly amortization, with the final repayment date in five years.
The interest rate will depend on Mechel Group’s net debt to earnings before interest, tax, depreciation and amortization ratio and is due to decrease with the company’s deleveraging. Part of the interest rate will be up for capitalization.
“VTB is our longstanding and reliable partner, and this deal is yet another proof of how productive our cooperation is,” Mechel chief financial officer Stanislav Ploschenko noted.
“Securing a new credit agreement with VTB Bank will enable the company to refinance a large share of its loans which are due to be repaid in 2013, which will significantly improve the group’s debt structure in the next 12 months and afford us more flexibility in managing operational cash flow.”
Mechel has total debt more than five times its market value after acquiring numerous assets before the global coal price decline, according to Bloomberg.
The Moscow-based company already has loans and credit lines from government-run VTB Group, Russia’s second-largest bank and OAO Gazprombank, the lending unit of the state gas export monopoly.
“Over the years of our cooperation, Mechel Group has shown itself to be a quality borrower,” VTB deputy president and management board chairman Yuri Solovyov said.
“Working with mining and steel companies is a strategically important direction for VTB Group’s activities.
“We are ready to ensure a stable financial platform for successful development of our partners’ business.”