Russian miner Mechel asks state bank to help fund coal project

Mon Mar 18, 2013 2:22pm EDT

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* VEB reviewing Mechel request, sum not disclosed

* Moody's downgrades firm to B3 from B2

* Company has net debt of $9.1 bln

* Mechel shares up 6 pct

MOSCOW, March 18 (Reuters) - Debt-laden Russian steel and coal miner Mechel has asked state bank Vnesheconombank, or VEB, for help financing its Siberian Elga mining project, a bank spokesman said on Monday.

Mechel, which had its credit rating downgraded by Moody's on Monday, has had to cut investment and put non-core assets on the market to service the $9.1 billion debt it amassed expanding operations before the 2008 financial crisis sent steel and coal prices tumbling.

VEB's press service told Reuters that "Mechel's application is being reviewed by the bank", but it would not disclose the amount of funds requested.

Mechel declined to comment.

Analysts said that development of the Elga coal project, which has proven reserves of 2.3 billion tonnes, could cost between $2 billion and $4 billion.

The company stands a good chance of securing funding from the state development bank, Alfa bank analyst Barry Ehrlich said, pointing out that the Russian government considers the Elga field as an important project.

Mechel's shares rose 6 percent on Monday, the largest daily rise since early January.

Despite Mechel's attempt to get its finances in order, credit ratings agency Moody's downgraded the company's rating to B3 from B2 and its outlook to negative from stable.

Moody's analyst Denis Perevezentsev said the downgrade was a result of "the group's high leverage, its impending breach of financial covenants and uncertainties surrounding their renegotiation, as well as low coking coal prices".

Facing a toxic combination of poor demand and uncertain markets, Mechel said last year that it would sell its non-Russian steelmaking operations and European steel trading unit, as well as ferroalloy and energy assets.

While the miner has disposed of some assets in Europe and is in talks about selling its ferroalloy business, Moody's said the sales might not be enough to make serious inroads into the company's debt.

Commodities trader Glencore and other companies are looking at buying Mechel's loss-making ferroalloy assets in Kazakhstan, sources familiar with the matter said on Friday.

(Reporting by Oksana Kobzeva, Andrey Kuzmin and Alessandra Prentice; Editing by Lidia Kelly and David Goodman)

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