Reuters reported that Russian steel and coking coal producer Mechel may have to call in state support to finance its USD 9 billion debt pile in 2012 if it once again fails to pull off an initial public offering of its mining unit in New York or London.
As per report, the company, controlled by tycoon Mr Igor Zyuzin, must repay or refinance more than USD 2.6 billion in loans in 2012, according to its own figures, just over a quarter of its total net debt of around USD 8.7 billion as of end September 2011.
Several financial sources told Reuters Mechel had hoped to service the debt with USD 2 billion raised from a long anticipated initial public offering of its flagship mining unit.
But the plan was derailed last year after global equity markets slumped and Mechel's share price lost 70% as investors fretted over the firm's critical debt situation.
Mr Chris Weafer, chief strategist at investment bank Troika Dialog, said that "Investors believe the company is under a lot of pressure to make a decision come to the market, sell assets, do something to reduce its debt burden."
Mechel says it does not see any problems paying its debt and referred to comments by senior vice president for finance Mr Stanislav Ploshenko to analysts in December 2011 "We don't expect any problems or challenges in implementing this debt repayment program."
Adding to the pressure on the company is a slump in coking coal prices falling since China cut Australian imports in 2011, which looks likely to hurt Mechel's future earnings. An HSBC report in January 2012 forecast average USD 261 per tonne in 2012, down from the USD 289 per tonne average in 2011.
Renaissance Capital metals and mining analyst Mr Boris Krasnojenov told Reuters that "If coking coal prices continue to decline, then Mechel's EBITDA will fall as well. Therefore there is a real chance that the company will breach its covenants. If that happens it will have to refinance its debt."
Mechel's debt to EBITDA ratio of 3.5 times means the US listed company is also close to breaching its debt covenants, making the company's financial position all the more precarious, bankers and financial analysts say.
Mechel's big problem is that capital markets have been effectively closed since August, with the successful USD 250 million listing of oil and gas explorer Ruspetro earlier this month a rare success story. It is seen as one of the companies most desperate to realize its IPO ambitions in 2012, but only if it can secure a valuation that would make a difference to its debt pile.
The mining unit represents around 70% of company assets, so a float of 20% of its equity would raise just USD 623 million at current prices, well below the reported goal of USD 2 billion.
(Sourced from www.reuters.com)
