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Russian watchdog clears Mechel's Elga rail line sale to Gazprombank

Russia'santitrust regulator approved Mechel OAO's sale of its Elga railway track to AOGazprombank in a deal that could finally dispel the threat ofbankruptcy that has dogged the coal group for the past two years, newswireInterfax reported May 6.

TheFederal Antimonopoly Service willallow Gazprombank to buy a 75% stake in the 321-kilometer railtrack, which links the massive Elga coal hub to the country's main transportsystem.

Underthe deal Gazprombank agreed to pay 34.3 billion rubles for the 75.1% share inthe rail track and a 49% share in the rail operating company.

Thetransaction is critical, since Mechel needs cash from the sale to pay off , itsbiggest lender.

Sberbankhas previouslythreatened to begin bankruptcy proceedings against the coal companyif it did not immediately repay at least some of the US$1.2 billion alreadyowed. Despite the threats, the two sides reached agreed on April 18 some of thesedebts. But the deal was contingent on Mechel being able to repay some debtimmediately, as well as other banks restructuring their debts with the miner.

Mechelin February reached debtrestructuring agreements with its four biggest lenders — Sberbank,Gazprombank, VTB and a foreign banking syndicate — over US$5.1 billion in debt,after spending two years tottering on the brink of insolvency.

Underthe terms of the agreement, the company delayed repayment on the majority ofits US$5.1 billion debt pile already past due, or maturing in 2016 and 2017. Mechelalso needed to reach a separate agreement with Sberbank to qualify for therestructuring. It has now achieved this.

Thelatest deal to sell Elga to Gazprombank should enable Mechel to pay offSberbank, and activate the US$5.1 billion debt restructuring agreed back inFebruary.

Butthe agreement suffered a surprise setback in early March, when minorityshareholders failed toapprove the deal at a vote in Moscow.

Asecond vote has been scheduled for May 26.

As of May 5, US$1 wasequivalent to 65.73 Russian rubles.