UPDATE 2-Mechel 2008 net up 25 pct y/y, Q4 loss weighs

* Mechel (MTL.N) 2008 net $1.14 bln, Reuters poll $1.49 bln

* Q4 net loss $496.9 mln

* Co says to sign debt refinancing agreements in July

* Shares off 4.3 pct in Moscow, 13.3 pct in New York (Adds details, analyst comment)

By Alfred Kueppers

MOSCOW, June 3 (Reuters) - Russian steel maker and coking coal miner Mechel said on Wednesday 2008 net profit rose 25 percent from 2007, but the figures came in below analysts' expectations as a fourth quarter loss weighed on the results.

Mechel's 2008 net reached $1.14 billion, well below the $1.49 billion forecast in a Reuters poll because of a $496.9 million net loss in the October-December period.

Worse may be still to come, particularly after executives noted during a conference call that key clients MMK (MAGN.MM) and NLMK (NLMK.MM) are not currently buying Mechel's coal.

"The call confirmed our fears that the situation will get worse in the first half of 2009," Uralsib analyst Dmitry Smolin said. He added that the bank is currently reviewing its "hold" rating on the company.

Russia's major steel producers posted losses in the final quarter of 2008 as orders from crisis-hit sectors such as construction and automobile production dried up.

Following the pattern set by larger rivals Severstal (CHMF.MM) and Evraz (HK1q.L) which wrote down billions of dollars of assets and inventory in the fourth quarter, Mechel's full-year results included $1.2 billion of forex and inventory losses.

Mechel, controlled by billionaire Igor Zyuzin, also said its full-year earnings before interest, depreciation, taxation and amortisation (EBITDA) rose 23 percent to $2.05 billion, below the $3.34 billion forecast.

Sales in the period rose 49 percent to $9.95 billion.

Investors sold on the news, and at 1707 GMT the ADRs were off 13.3 percent at $10.38 in New York after closing off 4.3 percent in Moscow.

DEBT BURDEN WEIGHS

Debt has become a major issue for Russian coal and steel producers, who borrowed more than $30 billion to make acquisitions and increase production during the pre-crisis boom. [ID:nLU975877]

Mechel said it breached a number of debt covenants, forcing it to reclassify most of its debt as short-term.

"Most lending banks show understanding for this situation and take a reasonable approach to it," Zyuzin said in a statement.

"We have already reached agreements on conditions for restructuring the main part of the debt and expect that the restructuring papers will be signed in July."

Its total debt stood at $5.4 billion as of Dec. 31, 2008.

Uralsib's Smolin said the covenant violations were not likely to affect Mechel's business, and that the company will not have to make early repayments or redemptions of the loans.

Mechel also confirmed an earlier Reuters story that in July it will restructure $1.0 billion of a $1.5 billion bridge loan and pay off the rest with a portion of a Gazprombank loan. [ID:nLE927347]

Mechel is also preserving operating cash flow by reducing capex. It expects capex to reach $723 million this year, down from $1.2 billion in 2008.

The company did not issue any financial guidance for 2009. (Reporting by Alfred Kueppers; Editing by Rupert Winchester)