Boston, MA 09/23/2014 (wallstreetpr) – Russia based Mechel OAO (ADR) (NYSE:MTL) shares nosedived by nearly 30% after the nation’s economy minister expressed the high probability for the group filing for bankruptcy. Mechel is under immense debt burden and is being pressurized to repay its debt over restructuring. Alexei Ulyukayev revealed the news after the company rebuffed a proposal of converting a portion of debt into shares floated by three biggest lenders, namely, VTB, Gazprombank and Sberbank. The refusal to accept the proposal forced VTB to warn Mechel of legal action to recover its debt.
Debt Restructuring Preferred
Mechel OAO (ADR) (NYSE:MTL), which is coking coal miner and steel maker, came into trouble after it borrowed debt for big projects, but failed to accelerate the growth amid slack demand of chief steel making ingredient. The lenders to the company asked the company to convert nearly $3 billion of debt into 75% of its equity, but the company refused the same as it will diminish the share percentage of its founder and shareholder, Igor Zyuzin. Currently, Zyuzin holds 67% of the equity and the acceptance of proposal would have reduced his share to 10%. The company is of view that instead of parting with its equity shares, the lenders should consider debt restructuring, where the company intends to pay a portion of debt by selling its assets. According to Mechel OAO (ADR) (NYSE:MTL)’s CFO, Andrei Slivchenko, the debt restructuring will reduce the company’s debt burden by nearly $3 billion within a period of two to three years. In this direction, the company is already underway discussions with Russian Railways in respect of sellin its Elga-Ulak railroad unit for approximately $2 billion.
No Way Out
Though the Russian officials have been engaged in saving Mechel OAO (ADR) (NYSE:MTL), but the latest remarks of Mr. Ulyukayev points out that the company probably has no other way left aside bankruptcy. He added that the banks and the government are trying hard to fix the solution for debt-ridden company, but nothing fruitful has turned up so far.
