Like a debt on the head – Newspaper Kommersant No. 58 (7503) dated 04/05/2023

Mechel’s largest creditor, Gazprombank (GPB), unexpectedly decided to recover 12 billion rubles from the company. debt related to an unrestructured loan from 2010 involving BNP Paribas and UniCredit. Mechel asks the court to withdraw the lawsuit, as it claims that GPB did not even try to enter into negotiations. Experts note that now Mechel has enough funds to pay off the claims under the GPB lawsuit, however, filing a lawsuit threatens to cross-default on the rest of the company’s obligations and could potentially trigger its bankruptcy.

Gazprombank filed two cases with the Moscow Arbitration Court lawsuit To “Mechel” and its subsidiary Mechel-Steel Management Company. In one of the claims, a claim was made for the recovery of 11.9 billion rubles, in the second, the amount of claims was not specified. The bank did not comment on the claims, and Mechel, according to Kommersant’s information, on April 4 petitioned the court to withdraw them on the grounds that the plaintiff had not attempted a pre-trial settlement.

Mechel claims that they have no overdue debts to GPB and repay loans ahead of schedule, so the bank’s appeal to the court came as a surprise to the company.

Mechel has not yet received claims, but assumes that these are obligations to foreign creditors on loans guaranteed by export agencies, which have not been restructured. “We know that financing of one of the tranches of this loan was provided by Gazprombank to a foreign bank, which is Mechel’s creditor. From this foreign bank, the company did not receive claims for enforcement in court,” said a representative of Mechel.

Apparently, we are talking about a loan totaling $471.2 million, which Mechel took in 2010 for the construction of a universal rail and beam mill at the Chelyabinsk Metallurgical Plant. The organizer of the syndicate was BNP Paribas (its tranche was €103 million), UniCredit (€89 million) and GPB ($219.4 million) also participated. The maturity date to Gazprombank expired in July 2019, and to BNP Paribas and UniCredit in January 2021. In the 20F report for 2020, Mechel indicated that the presence of a delay makes it possible for creditors to demand a lump sum payment of a debt or to foreclose on collateral. “If ECA lenders resort to forced collection of debt, this could lead to a cross-default on our other obligations and early collection of almost all of our debt,” the company noted at the time. In the 20F report for 2021, Mechel stated that the debt on this loan is 33 billion rubles

GPB is the largest creditor of Mechel, and the second largest is VTB. Mechel does not disclose financials, but its financial position has improved after the restructuring of GPB loans in 2020 and due to higher coal prices in 2021-2022. According to Renaissance Capital, the company’s revenue in 2022 grew by 6%, to $5.7 billion, EBITDA – by 3%, to $1.7 billion. Net debt decreased by 19%, to $3 billion, and the ratio of net debt to EBITDA was 1.9 (21% below the level of 2021). At the end of 2020, the ratio reached 7.9.

Analysts interviewed by Kommersant do not dramatize the situation. Kirill Chuiko from BCS believes that GPB is unlikely to resort to an aggressive approach, now Mechel is earning enough to solve its debt stories.

“I think it’s more about the steps of both companies to build positions for negotiations,” he notes.

Ekaterina Makeeva, partner and head of sanctions practice at A-Pro, says that, presumably, it is about the requirement to repay a tranche to a foreign bank, which, in turn, was financed by Gazprombank. “If this assumption is correct, then the question that the court will first have to decide is whether Gazprombank will be a proper plaintiff. If the financing was provided by a pool of creditors, then yes,” the lawyer notes. In her opinion, there are risks of cross-default on other obligations of Mechel.

NSP partner Aram Grigoryan says that if a cross-default is announced, Mechel’s creditors have the right to demand full early repayment of the debt, which the company may not be able to cope with. In this case, Mechel can use the debt restructuring mechanism. “It is likely that foreign creditors will not enter into restructuring negotiations. In this case, Mechel will face bankruptcy, and the course of this bankruptcy will be determined by the creditor who will be the first to reach the Russian court with a bankruptcy petition,” the lawyer notes. According to Mr. Grigoryan, Gazprombank seeks to take the place of a creditor that can potentially initiate bankruptcy proceedings. In this case, foreign creditors will face a choice – either sell the claim to Mechel at a discount and close this story for themselves, or join the bankruptcy procedure, which could potentially drag on for years.

Evgeny Zainullin