Russia's Mechel sells main coal mine project to reduce debt

MOSCOW (Reuters) - Russian steel and coal producer Mechel <MTLR.MM> has sold its stake in the Elga coal mine in Russia, which was its main asset for future growth, to a local businessman to reduce debt, it said on Wednesday, sending its Moscow-listed shares up 17%.

After the deal to sell one of the world's largest coking coal deposits was agreed, two state-controlled Russian banks - Gazprombank and VTB - agreed to restructure part of Mechel's debt by 7 years with an optional extra 3 years, Mechel said.

"With the current economic situation and our debt leverage in mind, we made a difficult but well-considered ... decision to sell Elga Coal Complex," Oleg Korzhov, Mechel chief executive, said in a statement. "This will enable us to retain financial and social stability..."

Elga requires further investments to develop, while Mechel, whose net debt stood at 400 billion roubles ($5.2 billion) at the end of 2019, spent months on debt restructuring talks with its creditors.

Mechel, controlled by businessman Igor Zyuzin, sold the 51% in the Elga project to A-Property, controlled by Russian businessman Albert Avdolyan, for 89 billion roubles (940.51 million pounds), Mechel said. A-Property also settled Mechel's debt to the state development bank VEB for $107 million.

Mechel will use the proceeds from the deal to repay part of its debt to Gazprombank and VTB in proportion to their share in Mechel's debt leverage. After that, the overall restructured debt to Gazprombank and VTB Bank will total 237 billion roubles ($3.1 billion), it added.

The reduced debt will help Mechel to focus on investment in its coal mining and processing at assets in Russia's Kuzbass and Yakutia regions and increasing output of high-margin steel products, the company said.

(Reporting by Polina Devitt and Anastasia Lyrchikova; writing by Polina Devitt; editing by Chizu Nomiyama)