Reuters reported that indebted Russian coking coal and steel producer Mechel faces the risk of a further increase in already stretched borrowings due to the financial struggles of subsidiary Estar which owes it nearly USD 1 billion.

If Estar defaults on the loan which falls due at the end of September some analysts believe it could lead to renewed pressure on Mechel debt covenants, less than six months after they were renegotiated for the second time in as many years.

Mr Stanislav Ploschenko CFO of Mechel said "If the loan is not repaid we will enforce the security which is the pledge of shares of essentially all Estar assets consequently technically that will be tantamount to an increase of debt."

Mechel controlled by tycoon Mr Igor Zyuzin last renegotiated its debt covenants in April widening the net debt to EBITDA ratio allowances.

The move only partly allayed market concerns about its total debt position which stood at USD 9.9 billion at year end 2011. The shares have shed 75% of their value over the past 12 months, now valuing the company at USD 3.3 billion.

Mr Iryna Trygub-Kainz Raiffeisen Centrobank analyst said "(Mechel debt) is still a big problem. The company has made bold statements on debt resolution now we need to see the first signs (of improvement)."

The latest cause for concern is Mechel relationship with its Estar unit, through which it bought Ukraine Donetsk Electrometallurgical steelmaking plant for USD 537 million in December last year.

Source - Reuters

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