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MMK to repay 2016 debt early, plans Fortescue stake sale

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MMK to repay 2016 debt early, plans Fortescue stake sale

will likely repay US$614 million in debt ahead of schedule in 2016 using most ofits spare cash on hand, CFO Sergey Sulimov said on a call with investors May 6.

Speakingafter the company reported first-quarterearnings of US$157 million, up from a loss of US$125 million the previousquarter, Sulimov said the company was aiming to close a deal to pay down most ofits debt maturing in 2016 by the summer.

He alsoconfirmed executives were keen to repay "expensive" debt taken on in 2009to finance construction of MMK's Turkish steel plants, since the yield was high.

"Weare paying a fixed rate of 5%. Given the cost of debt [compared to] current rates,we definitely want to get rid of that as soon as possible," he told the audience.

"Atthat time, the markets were very volatile so we paid a lot."

He didnot provide details of how much of this Turkish debt remained, but stressed thisdebt would be prioritized for early repayment.

MMK'sTurkish operations started in 2007 as a 50% joint venture with Atakas Group. Theventure borrowed nearly US$1 billion to finance construction of steel mills thatare now fully owned by MMK.

Sulimovalso confirmed that MMK sold a 2% stake in Australian iron ore major in March,and suggested that a sale of the remaining 3% stake could come soon.

"Dueto a range of rules on market disclosures on the [ASX], I can't speak in detailabout our long-term plans for this holding. However, I do stress that for MMK, FMGis not a core asset, and we are planning to reduce our exposure to this companyin the future," he said.

If theshare stake is sold, the realized cash could be used to pay off US$712 million indebt due in 2017, he said.

He confirmedthat the company is not planning to refinance debt or take on any more, and willuse all its existing resources to pay down debt.

As ofthe end of March, MMK had total debt of US$1.61 billion, and total cash and cash-equivalentsof US$677 million.

Likeother steel producers, MMK is gearing up for what could be a volatile year. Whileprices in Russia have been increasing rapidly since the start of the year, Sulimovsaid he did not expect the situation to last.

"Structurally,nothing in the global steel sector has changed. There is huge oversupply in ironore and steel, there is overcapacity especially in China," he said.

"Wehave seen some Chinese [mills] close capacity, but on the other hand we see thenews that they are also planning to launch new production. So there will be somemore ups and downs in the market, though maybe not so volatile as it was last year."

The price of Russian hot-rolled coil rose 59% in the three monthsto April 29, amounting to US$476 per tonne, according to data from BCS Global Markets,a Moscow brokerage. Other steel groups surged in price as well — cold-rolled steelincreased in price by 35% over the same period, to US$510 per tonne, while rebarsurged 125%, to US$556 per tonne.

Unlike many global peers, Russian steelmakers have retained healthymargins primarily due to the country's momentous currency devaluation.

The ruble, which traded at about 35 to the dollar in mid-2014,lost value as the price of crude oil — Russia's biggest export — tanked. By thestart of 2016, the ruble traded at over 70 to the dollar.

As of May 5, US$1 was equivalentto 65.73 Russian rubles.