Mechel closes sale of 51% of Elga Coal Complex for 89 bln rubles
MOSCOW. April 22 (Interfax) - Mechel has closed the deal on the sale of companies comprising Elga Coal Complex, and signed agreements with Gazprombank and VTB prolonging the debt maturity of the credit lines by 10 years, the coal and metals group said in a press release.
Mechel has sold its 51% stakes in the Elgaugol, Elga-Dorogaand Mechel Trans Vostok limited liability companies to A-Property LLC, a company owned by Albert Avdolyan, the cofounder of telecoms provider Yota. The consideration amounted to 89 billion rubles, including the control premium. The buyer also fully settled Mechel's liabilities to the state development corporation VEB.RF, totaling $107 million.
At the same time, Mechel signed debt restructuring agreements with Gazprombank and VTB Bank, with proceeds from the sale of the 51% stake in Elga Coal Complex used to repay the debt to the two banks in proportion to their share in Mechel Group's debt leverage.
As such, 57.4% of the transaction amount will be used for early debt repayment to VTB Bank and 42.6% for repayment to Gazprombank. As a result of this and the waiver of the option to buy Gazprombank's 49% stake in Elga, the company's overall debt leverage will go down by approximately 145 billion rubles.
The loans' debt maturity is extended by seven years to March 2027 with the option of an additional three-year extension. Other essential terms, including interest rates and loan collateral, remain unchanged. The overall restructured debt to Gazprombank and VTB Bank will total 237 billion rubles after Mechel repay part of its debt with proceeds received from selling Elga.
"With the current economic situation and our debt leverage in mind, we made a difficult but well-considered and informed decision to sell Elga Coal Complex. The funds we receive with this deal will be used to repay part of our loan obligations to VTB Bank and Gazprombank. Reduced debt leverage will help us implement our investment program aimed at increasing coal mining and processing at our Kuzbass and Yakutia facilities, as well as increasing output of high-margin products in our steel division. This will enable us to retain financial and social stability in Mechel Group's operations and ensure Mechel Group's further development," said Mechel CEO Oleg Korzhov.
Mechel's shares rallied on the news: ordinary shares were up 14.8% from previous closing within minutes of the announcement, to 75 rubles a share, and preferred shares were up 13% to 69.85 rubles.
Elgaugol is the developer of the Elga coal deposit in southeast Yakutia. It is one of the world's largest deposits of high-quality coking coal with reserves estimated at 2.2 billion tonnes according to JORC. The deposit consists of major flat-lying seams up to 15 meters thick with minor overlying seams. Mining at the deposit began in 2011. Traffic along Mechel-built 321-kilometer railroad linking the deposit with the Baikal-Amur Mainline was launched in the same year. The Elga deposit is available for open-pit mining, which is much cheaper, more efficient and safer than underground mining. Elga coals are rare for the Russian coal market due to their high quality characteristics.