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Mechel expects to reach debt deferral deal soon; Q2'19 profit holds steady YOY

Heavily indebted Russian steelmaker Mechel PAO said Aug. 15 that it expects to reach an agreement soon to defer repayment of debt due between 2020 and 2022.

The company recently proposed to pay back the principals to unspecified banks between 2024 and 2026 instead, PAO Sberbank of Russia deputy chairman, Anatoly Popov, revealed in July. Most of Mechel's debt belongs to Russia's three largest, state-owned banks, Sberbank, VTB Bank PJSC and Gazprombank OJSC.

As things stand, the coal, iron and steel business's cash flow will not be sufficient to cover its debt repayments between 2020 and 2022, CEO Oleg Korzhov said in an Aug. 15 financial update.

"We have accordingly called on our lenders with an offer on moving the debt maturity to a later period," Korzhov said. "The banks are now considering our offer, and we expect to reach an agreement on this issue in the nearest future."

Mechel's net debt excluding fines and penalties totaled 457.08 billion rubles as of June 30, down from 467.70 billion rubles at the end of 2018, while the ratio of net debt to EBITDA rose to 6.4 from 5.7 quarter over quarter.

The company borrowed heavily during the commodities boom of the early 2000s, before a prolonged restructuring complicated by Russia's 2014 economic crisis.

Mechel reported 1.41 billion rubles of profit for the second quarter, a slight increase from the 1.40 billion rubles booked in the same period of 2018, but far below the 11.34 billion rubles in the first quarter when it made a foreign exchange gain of 11.98 billion rubles.

Profit for the first half of the year totaled 12.75 billion rubles, increasing 172% year over year thanks to the strong first quarter.

Revenue rose 11% quarter over quarter to 46.75 billion rubles in the second quarter, but Mechel also gained 2.65 billion rubles from foreign exchange during the period.

Meanwhile, coal production recovered to 4.6 million tonnes in the second quarter after falling 29% year over year to 3.5 Mt in the first quarter of the year due to a stockpile buildup caused by a shortage of rail cars. The company's flagship Elga deposit in the Sakha Republic led the uptick with a 41% rise in output quarter over quarter.

Output of pig iron and steel both held steady at 867,000 tonnes and 932,000 tonnes quarter over quarter, but were down by 10% and 9%, respectively, year over year.

As of Aug. 14, US$1 was equivalent to 65.95 Russian rubles.