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Evraz eyes asset sales and moves to cut debt
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Sunday, 25 Nov 2012
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Reuters reported that Evraz, Russia's largest steelmaker, may sell assets and rein in capital spending to help manage its $6 billion of debt in a weakening market.

Russian steelmakers invested heavily to expand until the 2008 global financial crisis hit steel demand and forced them to borrow to support their operations.

Two of Evraz's Russian peers, MMK and Mechel are struggling to service debts they piled up to pay for acquisitions and growth projects.

London listed Evraz, controlled partly by Chelsea football club owner Roman Abramovich, announced the sale of noncore transportation unit Evraztrans but could consider more asset disposals.

Mr Giacomo Baizini CFO of Evraz said that the FTSE 100 company may post weaker H2 results buffeted by volatility in foreign exchange markets. But Evraz which expects to generate enough cash to service its debts in 2012 and 2013 would not consider any new bond issues unless the market offers especially favorable terms.

Mr Baizini said that "Given the current environment, we are considering options for some of our noncore or nonperforming assets. We aim to reduce our net debt by a combination of cash generation by the business and by selected disposals."

The company previously named Vitkovice Steel in the Czech Republic, where the production line was recently shut, as an asset that has not performed to expectations. Another is its South African steel and vanadium business, Evraz Highveld which has been hit by labor strikes.

The operational problems at the two units contributed to 3% decline in Evraz's overall steel production in the Q3 from the previous period. Evraz has an equity market value of USD 4.9 billion. Its shares have lost half their value since peaking in January. In June, Evraz announced ambitious plans to invest USD 6 billion over the next 4 years to meet growing global demand for railroads and pipelines.

Mr Baizini said that weak operations led the company to rein in previously bullish capital spending plans. We are probably not going to invest as much in development as we would have thought a year ago. We plan for our capital expenditures in 2013 to be less than in 2012. We are simply aligning the covenants on the 2015 eurobonds to the covenants that are on all our other eurobonds. And we think we are going to achieve this.

Evraz, which swung from USD 263 million net profit last year to USD 50 million net loss in the H1 of 2012, expects weaker H2 results with foreign exchange fluctuations affecting its H2 and full year figures. Given that revenues are well below the levels before the crisis, the adjustments for fluctuations in [foreign exchange] and other similar adjustments have an important effect on our bottom line.

Mr Baizini said that Evraz will generate enough cash to sustain its debt this year and next. Based on analyst consensus forecasts for core earnings of USD 2 billion this year and USD 2.3 billion in 2013, Evraz would be able to cover annual interest costs of about USD 500 million, capital expenditures of USD 1 billion and tax payments of a couple of hundred million.

He said that we should remain free-cash-flow neutral to positive. Evraz has no immediate plans to issue new bonds but will keep its borrowing options open.

Source – The Moscow


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