Mechel and VTB Reach Deal on Debt

ST PETERSBURG, Russia—Russia's second largest bank VTB and steel producer Mechel OAO have reached a preliminary agreement over its debt, offering the miner hope that it may avoid bankruptcy, VTB's president Andrei Kostin said on Friday.

State-run VTB and Mechel have informally agreed that the bank will restructure amortization of the metal producer's main debt and let it cover 2015 and 2016 obligations in 2018 and 2019, respectively.

VTB will also ease the debt burden for Mechel, which rose because of emergency monetary tightening by the central bank in December—when the key rate was raised to 17% from 10.5%.

In return, Mechel will have to pay back around 4 billion rubles ($71.2 million) in debt delinquency and provide additional collateral and guarantees, as agreed in a memorandum signed by VTB and Mechel.

"If Mechel fulfills the obligations, we plan to sign the restructuring deal in late June or early July. If not, we will turn back to court procedures," Mr. Kostin said.

Mechel Chief Executive Oleg Korzhov confirmed later on Friday that his company reached an agreement with VTB. He said that Mechel had to pay back 2.8 billion rubles in overdue debt.

Mechel, which is controlled by the billionaire Igor Zyuzin and owes about $5.1 billion to Russia's three largest banks, has been on the verge of bankruptcy for months. Government officials have repeatedly said that they see no other solution but to bankrupt the miner or convert the debt into shares.

The deal that Mechel reached with VTB doesn't solve all the debt issues for the company as it still has to meet debt obligations to state-owned Sberbank and Gazprombank. Sberbank said recently that it will file a case to bankrupt Mechel if the company doesn't present acceptable proposals.

Last year, Mr. Kostin said that Mechel creditors will consider proposals by the company to save it from bankruptcy and restructure its debt, but there was "no scenario apart from the fairy-tale one."

Mechel stock rose to 71.7 rubles a share on the Moscow exchange following Mr. Kostin's statement, gaining 7.3% on the day by 13:02 GMT.

Write to Andrey Ostroukh at [e-mail]

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