Debt woes slash market value of Russia's Mechel by 40 pct

Reuters

* Mechel expects to complete debt talks by end-Nov

* Mechel: Share price decline "speculative"

* Debt worries trigger stop losses - sources

By Douglas Busvine and Zlata Garasyuta

MOSCOW, Nov 13 (Reuters) - Russian mining group Mechel lost 40 percent of its market value in Moscowon Wednesday, hit by concerns over a proposed debt restructuringthat the company called speculative.

Mechel, controlled by tycoon Igor Zyuzin, is struggling witha $9 billion debt load after an acquisition spree left itexposed to a slump in steel and coal prices, and unable to makedisposals at good prices or pay for major investments.

Its shares also hit record lows in New York, with traderssaying concerns over the company's debt woes triggered heavyselling by its creditor banks.

"There are lots of stop-loss orders," said Alexei Bachurin,chief cash equities trader at Renaissance Capital in Moscow.

Bachurin added that some Mechel bonds were yielding 100percent. "If bonds are trading at 50-60 percent of par thatmeans an immediate restructuring," he said.

Mechel has long been regarded as one of the Russianindustrial groups vulnerable to a turn in the commodities cycleand a slowdown in Russia. Last year it put non-core assets upfor sale but has struggled to make much of a dent in its debt.

Shares in the company have lost 96 percent since their peakin May 2008, just before President Vladimir suggested "sendinground a doctor" because Zyuzin had missed a meeting withbusinessmen due to illness.

Traders said Mechel's top management had pledged shares atRussia's largest banks, and that the price slide had triggered asnowball of so-called margin calls, in which a bank sells sharesheld as security against loans.

EASIER TERMS

Mechel asked creditors last month to agree a furtherrelaxation on the terms of its debts, seeking covenant waiversfor this year and 2014, both for itself and its mining divisionMechel Mining, sources said at the time.

Talks with creditor banks on a covenant holiday and a debtrestructuring were "going well", Mechel said in a statement,adding it expected them to be completed by the end of November.

"There are no negative events at the company," Mechel said,adding that it considered the decline in the company's shareprice to be "entirely speculative".

Mechel has not published its first-half financial resultsyet. Publication would have risked violating its loan covenantswhile the delay enables it to continue negotiations with itscreditors, according to market sources.

One of the covenants states that Mechel's net debt to EBITDAratio should not exceed 7.5 in the first half of 2013, whileMechel Mining's should be no more than 4.25. Mechel'sdebt-to-EBITDA ratio was 9.0 in the first quarter.

Its shares hit all-time lows before halving their losses totrade at $2.21 in New York, down by more than 20 percent. Itsless-liquid Moscow shares ended down 41 percent at 56.3 roubles.

"We don't see any fundamental reason for such a share-pricedecline," said Ekaterina Trofimova, first vice-president atGazprombank, a creditor that lent Mechel $1 billion earlier thisyear. Gazprombank is among the banks in loans talks with Mechel.

Mechel's efforts to sell non-core assets and financing ofits key coal project, the Elga field in Siberia, show that thecompany has managed to stabilise the situation, Trofimova added.

Work on Elga, one of the world's largest coking coalreserves, has long been blighted by poor transport links. InSeptember Mechel was granted a $2.5 billion loan from a statebank to continue the project.

Other market sources said, however, that stop-loss sellingwas driven by the very state-controlled banks that are Mechel'smain creditors.

"Brokers are talking about rumours that the company plans todefault, but that is odd - they don't have principal repaymentson their debt until next year," said one analyst with a foreignbank in Moscow.

"It's possible that there was a wave of indignation from thecreditor banks."

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