bne IntelliNews -

Mining and metals company Mechel, one of the most indebted industrial holdings in Russia, has proposed a debt restructuring plan to its creditors, Mechel vice president Andrei Slivchenko told the press. As of end of Q3 Mechel's net debt amounted to $7.84bn, including RUB26.8bn and $1.4bn to state-controlled Gazprombank. The other two main creditors are the state-controlled banks VTB and Sberbank. 

VTB confirmed receiving the proposal from Mechel, but said it was premature to call it a breakthrough. It was not disclosed what the terms of the debt restructuring proposal are.

According to unconfirmed reports, at the beginning of November the main shareholder of the company, Igor Zyuzin (67.42%), was given an ultimatum by the Russian government: either accept converting the group's loans from the three state-controlled banks into shares and diluting his ownership in Mechel, or the government would withdraw from regulating the situation with its main creditors, exposing the group to the risk of insolvency proceedings.

Converting all of Mechel's debt would mean issuing an additional 5.2mn shares, dilluting Zyuzin's stake to 5%, and granting GazpromBank, VTB and Sberbank 40%, 31% and 22% of the voting shares, respectively. The free float of the company would drop from 30% to 2%.

This week, business daily Vedomosti said that Zyuzin's direct stake in Mechel had dropped to 51.2%, after offloading an 18% stake owned via a Russian company to his children and his wife. The share divestment could be motivated by personal guarantees given by Zyuzin on loans to Mechel, say legal experts cited by Vedomosti, which expose his shares to court action by creditors. According to other experts, reducing the shares in the company he holds directly or indirectly could constitute a breach of loan covenants.  

In the third quarter Mechel's net loss soared nine-fold compared to the previous quarter to $575mn. For January-September 2014 the overall net loss amounted to $1.2bn compared to a $2.25bn loss for the same period of 2013. Ebitda declined by 46% y/y in January-September to $470mn, and the ebitda margin (compared to revenues of $5bn) amounted to 9.3% against 8.9% for the same period of last year. Mechel's operational capital went down by $160mn in Q3 to negative $120mn as of the end of September.