Russia Evraz, TMK take separate paths on debt mountain
* Evraz issues $600 mln in convertible bonds, $300 mln GDRs
* TMK to refinance debt after bond buyback, covenant changes
(Wraps Evraz, TMK series, adds analysts)
By Alfred Kueppers
MOSCOW, July 8 (Reuters) - Russian steel heavyweights Evraz (HK1q.L), and TMK (TRMKq.L) announced divergent solutions on Wednesday to the rising risk of default that threatens economic upheavel in the world's fourth largest steel producing nation.
Evraz part-owned by billionaire Roman Abramovich, said it would raise $900 million via a $600 million convertible bond issue and a $300 million share sale and use the proceeds to refinance debt and fund corporate activities. [ID:nL8483891]
Since Abramovich and fellow shareholders are purchasing $400 million of the two issues via their Lanebrook investment vehicle, much of the fundraising move is essentially a capital injection, analysts said.
The issue was oversubscribed, a source close to the issue said, adding that price guidance for both bonds and stock was $16.50 per security, the source said.
TMK, on the other hand, said it would buy back up to $425 million of a $600 million note due in 2011. [ID:nL0650287]
Analysts said the company needed to retire the bond in order to free it from the bond's covenants, which restrict the percentage of assets it can use to secure debt. The move was necessary to pursue debt restructuring talks, they said.
"As we understand, TMK plans to refinance part of their debt with long-term secured bank loans and the covenants under the $600 mln notes currently do not allow them to do this," Standard & Poor's credit analyst Andrei Nikolayev said.
The agency lowered its rating on the steel pipe maker to 'B' from 'B+' on Wednesday. [ID:nSPWbBnKTX]
The two announcements underscore the problems faced by Russia's heavily-indebted steel sector, where leading producers borrowed more than $30 billion to fund acquisitions and expand production during the pre-crisis boom. [ID:nLU975877]
EVRAZ PREFERS BONDS
Evraz core shareholders' willingness to invest in the $900 million convertible bond and share issue made it a viable option for the company, ING fixed income analyst Stanislav Ponomarenko said.
"For Evraz, I think this is an option they can use, partly because their shareholders can inject capital into the company," he said.
Evraz had total debts of $8.5 billion as of end-June, down from $9.0 billion at the end of the first quarter, and the company said Wednesday it may break debt covenants this year and it is seeking a waiver from lenders to avoid immediate repayments.
"There are two possibilities: either they renegotiate terms or they refinance some of the debt," UBS analysts Alexei Morozov said, adding that a successful refinance is likely.
TMK NOTES
TMK's total debt stood at $3.2 billion at the end of last year, and in its statement the company said it has a "plan to successfully implement the refinancing of its short-term indebtedness," though it did not provide any details on the volume involved.
Analysts said it needs to buy back $425 million of the note and change the terms on the outstanding amount since the covenants restrict the amount of secured indebtedness to 15 percent of its total assets.
In order to attract new loans, TMK wants to raise this amount to 40 percent.
"Maybe in the case of TMK the company doesn't have the option to inject capital," ING fixed income analyst Stanislav Ponomarenko said. "So for TMK the only option is bank loans or raising capital through their US assets." (Reporting by Alfred Kueppers; Editing by Mike Nesbit)
