MOSCOW Russian state-controlled bank VTB (VTBR.MM) has agreed to join other creditors in restructuring mining group Mechel's (MTLR.MM) $9.6 billion debt, a source close to VTB said on Saturday.
The coal-to-steel group, controlled by Igor Zyuzin, borrowed heavily to pay for acquisitions even after the 2008-2009 global economic slump, leaving it dangerously exposed to a global industrial downturn.
VTB had been resisting a restructuring deal in which Mechel wanted a waiver of loan covenants and delays to its debt repayments, bankers familiar with the negotiations say.
New York-listed Mechel owes 60 percent of its debts to state banks, which this week showed impatience over its failure to shore up its balance sheet with asset sales. Panic selling sent Mechel's stock to all-time lows on Wednesday.
Fears about the company's viability were further fuelled on Thursday when the central bank ruled that its bonds were worthless as loan collateral.
"We confirmed that we and other banks are ready to restructure," the source said on condition of anonymity.
Citing sources, Forbes magazine's Russian online edition reported that Mechel's banks had agreed to defer loan payments for next year and that these would now be spread across 2015-17. No final deal has been signed, Forbes said.
Mechel declined to comment, but has said it hopes to wrap up restructuring talks by the end of November. It is due to repay $2.5 billion in loans next year.
CENTRAL BANK VOTE OF CONFIDENCE
Separately, the central bank said that Mechel's bonds and shares would again be eligible as collateral pledged by banks in refinancing operations.
Explaining its decision in a short statement, the central bank said: "The situation with the securities of the joint stock company Mechel has stabilised."
From Monday, the central bank will apply a coefficent of 0.7 to Mechel's bonds in its credit operations, meaning banks can borrow 70 percent of the market value of the bonds they pledge. Such coefficients are usually larger for Russian corporate bonds.
The central bank also said an initial discount of 25 percent would apply for repo transactions with Mechel bonds, while a 45 percent discount would apply to Mechel's ordinary and preferred shares. Repo deals are used by banks to borrow short-term funds.
Zyuzin owned 67.4 percent of Mechel as of July 22 and he and his companies had pledged about 50 percent of Mechel's shares as collateral for loans, according to company filings.
Mechel shares slumped by more than 40 percent on Wednesday and have lost 96 percent since their peak in May 2008, before President Vladimir Putin suggested "sending round a doctor" after Zyuzin missed a meeting due to illness.
Yields on some of its 60 billion roubles ($1.8 billion) in bonds exceed 100 percent. Holders of a third of those bonds have the right to sell them back to the company at face value until the end of February, creating risks of a renewed liquidity crunch.