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EBRD again advances restructuring in the Russian steel sector with US$ 105 million financing facility for Magnitogorsk Iron and Steel Works
Continuing its commitment to foster restructuring in the Russian steel sector, the European Bank for Reconstruction and Development (EBRD) announced that it was providing the Magnitogorsk Iron and Steel Works (MMK) with a US$ 105 million (ECU 95 million) pre-export financing facility to advance MMK's restructuring process and to improve its financial position as one of the leading steel manufacturers in the Russian Federation.
The EBRD's financing package, signed on 30 October 1997, will comprise a US$ 35 million (ECU 30.4 million) loan for the Bank's account, a US$ 60 million (ECU 52 million) loan syndicated to a select group of Western commercial banks, and an additional US$ 10 million (ECU 9 million) to be provided in two parallel loans of US$ 5 million (ECU 4.5 million) by two local Russian banks.
The syndicated loan of US$ 60 million, led and arranged by the EBRD, represents the largest syndicated financing provided to a Russian manufacturing enterprise and is designed to introduce MMK to international financial markets.
The EBRD's financing package will provide MMK with working capital to purchase raw materials, energy and transport services required for production of steel for export. It will also enable MMK to increase the level of its cash purchases, thereby terminating certain unprofitable barter transactions with suppliers.
Financing from the EBRD is linked to implementation of a strategic development programme designed by MMK's management. The programme sets targets for reducing production costs, strengthening marketing and quality management, implementing environmental, health and safety measures, and improving corporate governance. Financial data will be disclosed using international accounting standards, and MMK share transfers will be administered by an independent registrar. The company, located in Magnitogorsk in the Chelyabinsk region, currently employs 63,000 people among its 45 subsidiaries, and is one of the leading producers of flat steel products in the Russian market.
Successful implementation of the pre-export financing facility and restructuring targets are pre-conditions for consideration of long-term financing from the EBRD. In cooperation with MMK management, the EBRD expects to begin a comprehensive appraisal of MMK's long-term investment programme, including assessment of investment in a proposed cold rolling mill. MMK has already made major investments in steel-making and concast, and has recently commissioned a new hot-strip mill.
"For both Russian industry and potential investors, the EBRD and MMK relationship clearly demonstrates the turn-around potential for a leading Russian company when accompanied by sound business strategy and long-term financing," said Reinhard Schmoelz, Director of the EBRD's Russia Team.
The consortium of commercial banks participating in the US$ 60 million loan syndication include Crédit Lyonnais, Dresdner Bank and Royal Bank of Canada as "Senior Lead Managers", and Bayerische Vereinsbank and Mees Pierson as "Lead Managers". The loan was fully subscribed.
"The syndicated portion of this financing package exemplifies commercial banks' appetite to participate in structured transactions in Russia. The EBRD has again demonstrated its ability to arrange large, complex equity and debt financing, and to operate as an important catalyst for foreign private capital," added Lorenz Jorgensen, the EBRD's Head of Syndications. "Our negotiations should be seen as a model for future transactions with multiple administrative needs for the borrower, the lender, participant banks, and parallel lenders."
With long-term financing still not easily available for leading steel companies, the EBRD is playing a key role as a financial catalyst to support restructuring in the steel industry throughout the former Soviet Union. Other recent EBRD investments include a US$ 118 million (ECU 107 million) debt and equity financing for Oskol Electrometallurgical Plant in Belgorod, Russia, and a US$ 235 million (ECU 307 million) loan to the Ispat-Karmet Steel Works in Karaganda, Kazakhstan.
The EBRD's approved investments in Russia total more than US$ 3.5 billion in loans and equity. Over 85 per cent of its portfolio is directed towards the private sector, including energy, food production, financial services and major manufacturing enterprises.
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