Gazprombank and Mechel entered into a settlement agreement on a debt of $244 million

Coal and steel producerMechel“and belonging to him Chelyabinsk Metallurgical Plant (ChMK) entered into a settlement agreement with Gazprombank (GPB) on the restructuring of loan obligations to the bank. A bank representative told Vedomosti about this. This decision was approved on September 25 by the Ninth Arbitration Court of Appeal (Moscow).

As the representative noted GPB, the terms of the agreement provide for the payment of the debt within two years on “terms comfortable for the parties,” the conversion of the debt into rubles and the forgiveness of part of the total debt. This should allow Mechel to significantly reduce its debt burden and reduce outstanding loan obligations from 15% to 3%.

The interlocutor explained that the proceedings concerned the rights that the bank had previously acquired “in full” from the lender and external participants under the loan agreement ChMK and foreign banks, concluded in 2010 and providing for three tranches.

Deputy Chairman of the Board GPB Tigran Khachaturov (supervises the group’s industrial assets), whose words were reported by the bank’s press service, noted that the agreement will allow Mechel to “continue uninterrupted operations, remain a stable supplier and a reliable employer.” “We are always committed to an open and constructive dialogue with partners,” Khachaturov added.

Vedomosti sent a request to Mechel.

In the beginning of April Gazprombank filed two claims with the Moscow Arbitration Court against Mechel and Mechel-Stal Management Company. The court materials indicated the amount of one of the claims – more than 11.9 billion rubles; for the second it was not specified.

The lawsuit was about Mechel’s obligations to foreign creditors for loans guaranteed by export agencies, which remain unrestructured. The company has no overdue debt to Gazprombank itself, said a Mechel representative.

From the case materials it follows that GPB through the French BNP Paribas Bank (agent under the agreement on participation in financing and the lender under the loan agreement dated September 15, 2010 in the amount of $219.4 million and 192 million euros) provided financing ChMK for the amount of $219.1 million.”Mechel» acted as a guarantor for the loan to ChMK.

The company’s annual report for 2021 stated that Mechel signed a loan agreement in September 2010 to finance the construction of a universal rail and beam mill at ChMK. The loan involved three tranches – from BNP Paribas (102.8 million euros), Gazprombank ($219.4 million) and Unicredit (89.2 million euros). Mechel took money to pay Italian metallurgical equipment supplier Danieli and Chinese engineering company Minmetals.

As of December 31, 2021, a total of RUB 24.5 billion remained to be paid under these lines. ($154.9 million and 154.7 million euros), the report said. They constitute arrears. In addition, late fees amounted to approximately 900 million rubles. ($8.9 million and 2.5 million euros). At the court hearing on July 17, it was noted that the borrower was supposed to repay the funds before August 2019, but the last payment on the principal debt was received in January 2014.

On July 17, the arbitration court granted the claim GPB and decided to recover from Mechel and ChMK in favor of the bank $244.2 million. According to the court decision, the principal debt in the amount of $154.8 million and $89.4 million in interest will be collected from the defendants jointly and severally in rubles at the exchange rate of the Central Bank of the Russian Federation on the date of payment. “Mechel» filed an appeal against this decision to the Ninth Arbitration Court of Appeal, but it upheld the decision of the first instance without change. On September 20, the parties submitted petitions to arbitration to approve the settlement agreement.

Director of Investment Analytics “BKS World of Investments” Kirill Chuiko considers the settlement agreement a “reasonable decision.” He explains that according to the court decision, Mechel had to pay the debt to Gazprombank, the only question was how this would be done.

Chuiko notes that “Mechel“now has good earnings” thanks to good coal prices and the weakening of the ruble against the dollar, so it can pay off debt from free cash flow (FCF).

“Mechel» in April 2020, sold 51% in the Elga coal project to Albert Avdolyan’s A-Property company for RUB 89 billion. This money was used to pay off the company’s debt to GPB And VTB. At the same time, the repayment period of the company’s debt to these banks was extended for seven years, the total amount of Mechel’s restructured liabilities amounted to 237 billion rubles.

In October of the same year, the company’s general director Oleg Korzhov said in an interview with Kommersant that Mechel expected to agree on the terms of restructuring the ECA loan (financing guaranteed by export credit agencies) by the end of the year and that the current amount of debt to Western creditors was $420 million. Korzhov noted that Mechel offered ECA creditors to enter into a general restructuring with Russian state banks, which was completed in April 2020, but agreements on this were not reached.

Mechel did not publish its annual report and financial results for 2022. In 2021, the company’s net profit according to IFRS increased 100 times compared to 2020 to RUB 80.57 billion. The group’s revenue in 2021 increased by 51% to RUB 402.1 billion, EBITDA tripled to RUB 118.9 billion. The group’s net debt without penalties and fines as of December 31, 2021 amounted to RUB 275 billion.

However, according to Chuiko, the company’s overall loan portfolio will not change much in the near future. Paying off the debt to Gazprombank now will lead to other loan payments being made later, the analyst explains.

According to Chuiko, information about the conclusion of a settlement agreement should support Mechel’s stock quotes. As of 12:53 Moscow time, the company’s ordinary shares on the Moscow Exchange cost 203.62 rubles. per piece (-0.5% to the close of the previous trading session), preferred – 219.75 rubles. per piece (-0.8%).