By Jack Stubbs
MOSCOW, April 26 (Reuters) - Russian metals and mining giant Mechel could start reducing debt this year if prices for its products hold up and other favourable market conditions continue, it said on Wednesday.
Mechel, which borrowed heavily before Russia’s economic crisis took hold in 2014, has struggled to keep up debt repayments as demand for its products weakened alongside tumbling coal and steel prices.
Before reaching restructuring agreements on the bulk of its debt last year, the company controlled by businessman Igor Zyuzin was facing bankruptcy.
Mechel Chief Executive Oleg Korzhov said that increases in prices for coal and steel, its two main products, had supported the company’s financial results in 2016.
“The cashflow generated by the group enables us to service our debt, operate successfully and, if the current favourable market situation holds, begin to decrease our debt burden,” he said in a statement.
Mechel’s net debt stood at 459 billion roubles ($8.12 billion) at the end of last year.
Chief Financial Officer Sergei Rezontov told Reuters in October that the company hoped to sign a final debt restructuring deal with creditors in early 2017.
But the company said on Wednesday that a syndicate of banks had filed a suit over the repayment of a pre-export financing contract at the London Court of International Arbitration in February.
“In February 2017, a number of creditors filed 14 arbitration requirements at the London Court of International Arbitration concerning a pre-export financing contract,” Mechel said in its 2016 financial report.
Including penalties and fines, the outstanding debt on that contract amounted to about 68 billion roubles by the end of 2016, the report said. A company spokeswoman said talks with the banks were ongoing.
Mechel posted a net profit of 1.6 billion roubles for the fourth quarter of 2016, against a net loss of 2.8 billion roubles in the previous quarter.
Its net profit for the year totalled 7.1 billion roubles, its first annual net profit since 2011, Korzhov said.
Revenue increased by 20 percent quarter on quarter to 79.7 billion roubles, Mechel said, and earnings before interest, taxation, depreciation and amortisation (EBITDA) jumped 55 percent to 24.6 billion roubles.
Capital expenditure will total 12.5 billion roubles in 2017, the company added, and it plans to produce 10 million tonnes of coking coal concentrate this year, having sold 8.7 million tonnes in 2016. ($1 = 56.5500 roubles)
Editing by Edmund Blair and David Goodman