March 19, 2020 / 5:12 PM / 11 days ago

Russia's Mechel confirms talks to sell coal asset as debt claim relief set to expire

MOSCOW, March 19 (Reuters) - Russian steel and coal producer Mechel confirmed on Thursday it was in talks to sell its flagship Elga coal project, one of the world’s biggest coking coal deposits, ahead of the imminent expiry of a debt claim relief deal.

Mechel has been negotiating the sale of the Elga coal project, its biggest growth asset, which requires significant further investments to develop, as part of the latest round of protracted debt restructuring talks with its creditors.

“In January 2020 the group began negotiations with potential buyers over the sale of the Elga coal complex, which will allow it to reduce its debt burden,” the company, controlled by businessman Igor Zyuzin, said in a statement, adding it had not yet reached a deal.

It did not name the potential buyers. Russian company A-Property said in January it had formally requested permission from the country’s anti-monopoly regulator to buy a 100% stake in the Elga project.

A spokeswoman for A-Property declined to comment.

Mechel holds a 51% stake while one of its main creditors, Gazprombank, holds the remaining 49%. Lender VTB is another principal creditor.

Mechel’s net debt, as of the end of 2019, stood at 400 billion roubles. The company has the resources to continue servicing this debt, but is unable to complete repayments or to continue investing in the development of the Elga mine, whose ore reserves stand at 2.2 billion tonnes.

The company has asked its creditors to delay the start of its repayments by over 12 months, its financial results report showed on Thursday.

Earlier this year, VTB and Gazprombank agreed not to demand any early debt repayments, but this breathing space expires on April 1 and March 31.

If the deal to sell Elga does not go through, debt restructuring plans will have to be altered, Mechel said in its report on Thursday.

A sale of the stake, however, could bring the company some relief. The Vedomosti business daily cited sources as saying last week that Mechel had requested 100 billion roubles ($1.24 billion) for the 51% Elga stake, which would bring the total value of the mine to 196 billion roubles. ($1 = 80.6096 roubles) (Reporting by Anastasia Lyrchikova; Writing by Polina Ivanova; Editing by Polina Devitt and David Evans)

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