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Mechel plans 2014 asset sales to cope with $2 billion debt

A general view shows the Mechel company headquarters in Moscow February 25, 2010. Picture taken February 25, 2010. REUTERS/Sergei Karpukhin
A general view shows the Mechel company headquarters in Moscow February 25, 2010. Picture taken February 25, 2010. REUTERS/Sergei Karpukhin

By Polina Devitt and Svetlana Burmistrova

MOSCOW (Reuters) - Loss-making Russian coal miner and steelmaker Mechel plans to raise around $1 billion from the sale of assets in 2014 which would help it to offset $2 billion debt it has to repay next year, the company said on Monday.

Mechel, controlled by billionaire Igor Zyuzin, like other Russian steelmakers invested heavily in expansion before the 2008 financial crisis hit demand, forcing it to borrow to support itself.

Russia's largest lenders, including Sberbank and VTB , have recently agreed to grant covenant holidays for Mechel for the next year. Sberbank has also restructured Mechel's $772 million loan.

The moves allowed the company to report financials for the third and for the second quarter on Monday without the risk of breaching debt covenants.

Its net debt was at $9.4 billion including financial leases as of December 6, of which $2 billion was due to be repaid in 2014, the company's presentation showed. It had $0.4 billion in cash and available credit lines at the same date.

"Next year the group will complete the restructuring of its assets, selling off the remainder of the non-strategic assets, which will bring around $1 billion of cash," chief financial officer (CFO) Stanislav Ploschenko told a conference call.

The cash will be used to reduce the debt, he added. The estimate includes proceeds from a planned sale of a minority stake in its large Elga coal project in Russia.

Mechel has given up on plans to sell a stake in its Mechel Mining and has postponed the buy-back of its own shares it announced in June, Ploschenko added.

In previous years Mechel has spent several billion dollars buying non-core assets, which it put up for disposal in 2012 and for which it has yet to get significant proceeds.

The company has agreed to sell its ferroalloy assets to Turkey's Yildirim Group for $425 million in August and hopes to get the money in several weeks, it said on Monday.

Banks will have to discuss the company's debt restructuring again in 2014, unless coal prices rise significantly, said Sergey Donskoy, metals and mining analyst at Societe Generale.

Mechel's New York-listed shares were up 2.9 percent by 1619 GMT, while shares in Moscow closed up 1.9 percent, outperforming its sector index <.MCXMM>.

WRITE-OFFS

The company plunged further into net loss in the first nine months of 2013 hurt by one-off write-downs related to asset sales and bad debt provisions, it said earlier on Monday.

Mechel reported a net loss of $2.2 billion for the first nine months of 2013 compared to a $550 million net loss for the same period a year ago.

The net loss was hit by write-offs of $1.1 billion as a result of discontinued operations, $645 million of bad debt provisions and foreign exchange losses of $151 million.

Adjusted for write-offs, the net loss was $483 million compared to net income of $369 million a year earlier, said the company.

Revenue fell 19 percent year on year to $6.7 billion, while adjusted earnings before interest, taxation, depreciation and amortization (EBITDA) of $608 million were down 55 percent.

(Reporting by Polina Devitt and Svetlana Burmistrova; editing by Jason Neely and Keiron Henderson)

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