March 23, 2020 / 5:25 PM / 17 days ago

Russian tycoon buys 49% of Elga coal project, talks to Mechel on 51%

MOSCOW (Reuters) - Russian businessman Albert Avdolyan has reached an agreement to buy a 49% stake in the major Elga coal project in Russia from Russian lender Gazprombank (GZPRI.MM), the bank said in a statement on Monday.

FILE PHOTO: A coal merchant holds up a lump of coal for the camera in his yard in Melmerby, northern England November 5, 2008. REUTERS/Nigel Roddis/File Photo

Avdolyan’s company A-Property is still in talks to buy the remaining 51% in the project from Russian steel and coal producer Mechel (MTLR.MM). For Mechel, Elga is the biggest growth asset, but it confirmed last week that it was in talks to sell it to reduce the debt burden.

Elga, one of the world’s biggest coking coal deposits, requires further investments to develop. Mechel’s net debt stood at 400 billion rubles ($5 billion) at the end of 2019, mainly to Gazprombank and another bank, VTB.

The businessman may reach an agreement with Mechel by the end of April and become the owner of 100% in the project, two sources familiar with talks told Reuters on Monday.

Mechel is in debt restructuring talks with its creditors, and these discussions directly depend on the result of its Elga negotiations, Mechel said last week.

It was not clear how much funding Avdolyan was offering Mechel for the stake.

Gazprombank and Avdolyan did not disclose the price of their deal on Monday.

According to one of the sources, Gazprombank will get 45 billion rubles ($557 million) for its stake from Avdolyan.

Mechel, according to this source, may get 95 billion rubles for its stake from Avdolyan and use them to repay part of its debt to Gazprombank and VTB (VTBR.MM) in proportion to their share in Mechel’s debt portfolio.

As a result, Gazprombank would get 85 billion to 90 billion rubles from both the deals in total, the source added.

A representative of Avdolyan and Mechel declined to comment.

The deal with Avdolyan is profitable for the bank, Gazprombank said in the statement.

Gazprombank bought this 49% stake in Elga for 34.4 billion rubles from Mechel as part of the miner’s previous round of debt restructuring talks. That time, Mechel used these proceeds to reduce its debt to another creditor.

VTB and Gazprombank previously agreed not to demand any early debt repayments from Mechel. This breathing space expires on March 31-April 1. If the deal to sell Elga does not go through, debt restructuring plans will be altered, Mechel said last week.

“There are a lot of nuances, so the negotiations are not finalised,” VTB said in its comment. “We are confident that we will be able to agree on all the details in the near future.”

($1 = 80.7805 rubles)

Reporting by Anastasia Lyrchikova and Tatiana Voronova; writing by Maria Kiselyova and Polina Devitt; editing by Ed Osmond and Lisa Shumaker

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