Mechel accounts suggest Russian metals company still unable to service debt

By bne IntelliNews October 15, 2014

bne -


Mechel's belatedly published accounts for the second quarter suggest the financially troubled Russian metals and mining giant is still unable to service its billion dollar debts, let alone pay them down. The company remains lossmaking and analysts warn that only political support can save it. 

According to Mechel's accounts, published under US GAAP rules on October 14, the company's adjusted net loss for the second quarter of 2014 dropped to $47m from $474m in the first quarter. Total adjusted net loss over the first half of the year rose to $511 compared to $391m in 2013, which the company explained in its accounts through falling global prices for its production.  Mechel has to pay back $680m in debt by the end of 2014, about half of which is owed to state banks, according to business daily Kommersant. Mechel’s share price dropped 3.9% on the news.

If coking coal prices stay at $120 per tonne, Mechel's earnings before tax, interest, depreciation and amortisation (ebitda) could come to $500m, which will not cover payments due on its debt, according to Oleg Petropavlovsky from Moscow brokerage BKS, as quoted by Kommersant.  Interest payments alone due in 2014 could total as much as $700m, even if the company reaches an agreement with creditors on the postponement of a $680m repayment due on the credit. Mechel's ratio of net debt to ebitda has already hit 15, as calculated by Petropavlovsky, whereas state banks' credit terms stipulate the maximum ratio at 10 at the end of 2014.

Mechel would have been bankrupt years ago if it were not for support from state banks, believe analysts, but that support looks to be coming to an end, and either Mechel will be sold or bankrupted by the end of the year. State banks VTB and Sberbank are suing the company over debts totalling at least Rbl4.5bn, and mysterious buyers have started buying Mechel debt collateralised with shares. Mechel owner Igor Zyuzin has accused Russian president Vladimir Putin's associate Gennady Tymchenko of being behind the moves. 

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