October 3, 2019 / 11:46 AM / 15 days ago

Russia's Mechel to pay $461 million for stake in Elga coal project: sources

MOSCOW (Reuters) - Russian steel and coal producer Mechel (MTLR.MM) agreed to pay around 30 billion roubles ($461 million) for Gazprombank’s (GZPRI.MM) 34% stake in the Elga coal project, two sources familiar with the matter told Reuters on Thursday.

Elga is one of the world’s largest coking coal deposits with reserves of 2.2 billion tonnes. In 2016, Gazprombank paid 34.4 billion roubles to buy a 49% stake in Elga from Mechel, which owns the remainder of the project, as part of the coal producer’s debt restructuring.

Mechel accepted Gazprombank’s offer to sell a 34% stake back to it in September. Mechel is expected to pay for the stake within the next four months, one of the sources added, although it is not clear how the indebted company will obtain the funds.

Mechel, controlled by Russian businessman Igor Zyuzin, declined to comment. Zyuzin also declined to comment on the issue on the sidelines of a conference in Moscow earlier this week.

Gazprombank said in a statement that it expected Mechel to “comply with its obligations under the law and signed documentation”, without commenting further.

Raising a loan is Mechel’s only option to fund the deal, Kirill Chuyko, head of research at BCS Global Markets, said.

Gazprombank is one of Mechel’s main creditors, along with Sberbank (SBER.MM) and VTB (VTBR.MM). Mechel is currently in talks with the creditors requesting more time to make its debt repayments.

Mechel used part of the funds it received from Gazprombank in 2016 to reduce its debt obligations to Sberbank.

Reporting by Anastasia Lyrchikova and Tatiana Voronova; writing by Polina Devitt; Editing by Jan Harvey and Kirsten Donovan

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