OREANDA-NEWS. February 12, 2010. Mechel and Gazprombank are in the final stage of negotiations regarding Mechel’s US1bn debt, according to unnamed sources in Vedomosti. The debt is currently carries an interest rate of 14-15%, while under a future agreement it could decline to 9-10%. In addition, the loan could be extended from 3 to 5 years, reported the press-centre of OTKRITIE Financial Corporation.

View: We think this news is positive as the company has already restructured the majority of its debt with an international syndicate of banks. Moreover, in the beginning of 4Q09, Mechel also restructured a VTB loan of RUB15bn, garnering a 3-year extension. The most up-to-date reported figures put its short-term debt at US 2.1bn and its long-term debt at US 3.5bn. The company may save an additional US 50mn annually on interest rates, and has negligible risks associated with debt burden. We think the stock may recover on the back of this news.

Valuation and Action: Mechel trades on a 2010 EV/EBITDA of 6.8x, while the EM average is 7.8x. We reiterate our HOLD rating.