Alrosa demanding Evraz pay 1.5 bln rubles, plus interest for Timir
MOSCOW. April 15 (Interfax) - Evraz, a Russian steel and coal group, did not manage to reach an agreement in time with Alrosa on deferring fully payment of 2.97 billion rubles for shares in the Timir iron ore project until 2016, national daily Kommersant reported.
The diamond miner has demanded that its partner in the project immediately pay about 1.5 billion rubles and penalty interest of LIBOR+5% for each overdue day, the paper said.
The paper said its sources believe that the companies could still come to an agreement, but analysts question the advisability of this.
The paper reported a source as saying that Alrosa president Fyodor Andreyev sent a letter to this effect to London-based Evraz Plc, the flagship company of the group. The second partial payment of 1.485 billion rubles was supposed to be transferred by 5:00 p.m. Moscow time on April 10, but this did not happen, he said, adding that Andreyev's letter was dated April 11.
Alrosa entered into an agreement to sell 51% of Timir to Evraz for 4.95 billion rubles in April 2013, retaining a 49% stake in the project. State lender Vnesheconombank (VEB) was a third party to the agreement, acquiring 1 share and preemptive rights to buy out the shares of any shareholder in ten years.
The Timir project involves the development of four iron ore deposits in Yakutia with reserves of about 5 billion tonnes and the construction of the Tayezhnoye and Tarynnakhskoye mines and processing plants with capacity of 20 million tonnes of ore annually. The project will cost upwards of 400 billion rubles.
Alrosa received the first payment of almost 2 billion rubles in the spring of 2013, and Evraz promised to pay the remaining 2.97 billion rubles by the end of 2014. However, in mid-March Evraz asked Alrosa to allow it to pay the money by instalments and extend the term of payment until 2016. The steel company proposed a new payment schedule that would see it pay three equal installments of 990 million rubles by the end of 2014, 2015 and 2016 respectively.
Evraz said it was making the request because it needs the money to accelerate the launch of the Tayezhny mining and processing plant at Timir. At the same time, Evraz began negotiations with the authorities of Yakutia, Alrosa's second largest shareholders after the Russian federal government, in the hopes of winning their support in lobbying for its request.
The paper reported a government source as saying that Evraz approached government officials with similar requests. The company discussed its proposal with the Finance Ministry, which did not object to rescheduling the payments, Kommersant's sources said.
Alrosa is now acting "within the context of formal procedures," one source said. "The decision on the configuration of the deal falls under the authority of the shareholders and the company's management does not have the right to correct them independently," he said.
Alrosa and Evraz are not commenting on this issue. A source at Evraz said that "despite Alrosa's claim, which is technical, the company expects to reach an agreement on the deferral soon."
Oleg Petropavlovsky of BCS agrees that Alrosa's demand can be considered formal, since there is no final agreement between the parties yet, and a company controlled by the state is "simply obligated to active according to corporate procedures." But the analyst believes that it would not be a big strain for Evraz to pay Alrosa 1.5 billion rubles, since the steel company had $1.6 billion in available funds at the end of 2013.
Evraz is now trying to draw out all of its investments, as it is worried about the unfavourable market situation, but the first phase of Timir requires a relatively small outlay and if domestic iron ore prices stay at about $80 per tonne it could pay for itself, Petropavlovsky said. Therefore, it would be right for the companies to maintain the schedule for the development of the Tayezhnoye deposit, he believes.