The Russian state could help loss-making coalminer Mechel slash its over $8 billion in debt by providing monopoly Russian Railways (RZhD) with the funds to buy the rail link to the miner’s key Elga project, Industry Minister Denis Manturov said.
In March, Russian media reported that Mechel and state-owned RZhD were discussing the sale of the 321-km line for up to 70 billion roubles ($2 billion), cash sorely needed by the company, which has $2.7 billion in loans due next year.
State banks have already helped refinance or restructure the company’s debts of $8.6 billion and the industry minister’s comments show the government is focused on preventing the employer of more than 80,000 people from going bust.
“Together with the Finance Ministry and other ministries, we’re trying to resolve Mechel’s problem in every possible way,” Manturov told reporters in Moscow on Friday.
“The only option is to provide RZhD with a capital increase for the purchase of the railroad ... If the debt falls to at least $6 billion, (Mechel’s) prospects improve,” he said, confirming that Mechel’s co-owner Igor Zyuzin had turned to the government for help.
Russia nursed its oligarch-owned conglomerates through the 2008-09 global crisis, avoiding a wave of defaults, in contrast to its financial collapse a decade earlier. Mechel piled on more debt to pay for acquisitions, only to be hit by an industry slump that left it with a devalued asset portfolio.
It posted a record loss of almost $3 billion last year and earlier in May a Russian newspaper reported creditors were questioning the future of the company.
Mechel also needs funds to continue development of Elga in remote Yakutia which has one of the world’s biggest coking coal reserves.
The firm has invested over $2 billion in the project so far, the majority of which went towards the construction of the railway, which a RZhD spokesman said on Friday the monopoly was prepared to take off Mechel’s hands if the state provides the funds.
However a participant in a government meeting on Mechel’s finances told Reuters that while this option had been discussed, it had not been approved as it would place too high a strain on state finances.
“There’s no money in the budget,” the source, close to RZhD, said. (Reuters)