Russian miner Mechel gives details of easier debt terms

MOSCOW Wed Jan 22, 2014 6:51am EST

MOSCOW Jan 22 (Reuters) - Heavily-indebted Russian miner Mechel disclosed on Wednesday details of easier borrowing terms it agreed with banks in late 2013 designed to give it some breathing space to turn itself around.

Mechel, controlled by billionaire Igor Zyuzin, like other Russian steelmakers invested heavily in expansion before the 2008 financial crisis hit demand, forcing it to borrow to support itself.

Banks including Russia's largest lenders, Sberbank and VTB, granted more lenient conditions for the coal-to-steel group on $6.5 billion of its more than $9 billion in net debts until Dec. 31 2014.

But some of these requirements will be tightened up slightly at the end of 2014, Mechel said in a report posted to its site.

A new higher debt-to-earnings cap along with other easier debt ratio terms are designed to grant Mechel some extra time to deal with its substantial obligations to lenders.

Under the latest terms, the cap on Mechel's debt to core earnings ratio, a key gauge of its ability to service its debts, is raised to 10.0 from the previous 7.5. The firm's recorded debt-to-earnings ratio was 10.0 as of July 30.

The report shows that prior to the new debt agreements, Mechel and its subsidiary Mechel Mining had exceeded five key debt terms.

The new requirements, which include a looser cap on Mechel's earnings-to-net interest expenses ratio, allowed the company to report earnings for the second and third quarters in December without the risk of breaching its debt agreements.

The company, which has yet to report full-year results for 2013, plunged further into negative territory in the first nine months of last year with a net loss of $2.2 billion.

The firm plans to sell off its remaining non-core assets in the coming year to help cover $2 billion in debt falling due for repayment in 2014.

Loans from Russian banks - mainly VTB, Gazprombank and Sberbank - account for around 60 percent of Mechel's debt, and foreign banks another 22 percent, according to the company. (Reporting by Svetlana Burmistrova; Writing by Alessandra Prentice; Editing by Douglas Busvine and Jane Merriman)

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