Gazprombank may require redemption of Mechel’s share in the Elga project

Gazprombank has received a call option to buy a controlling stake of Mechel in the largest coal project of the company the Elga deposit. The bank, which now buys 49% in the asset for 34 billion rubles, has the right to consolidate the company, if Mechel can’t do it itself. The main asset of Elga the railway to the amount of 70 billion rubles has been pledged on Gazprombank’s credits. As a result, Mechel will have a chance to regain 100% of Elga only if the steel and coal prices don’t fall, and the ruble remains weak for a long time.

Gazprombank will be able to become a wholly owner of the Elga coal project of the company, if it refuses to buy a stake of Gazprombank in it or violates the terms of the option agreement, the Mechel’s report, published on Friday,  informs. The fact that the parties entered into a put option, which allows the bank to require Mechel to repurchase its future stake in the project (49% in three target companies - Elga-Road, Elgaugol and Mechel Trans Vostok) in 2021-2023, was reported by the company in April. But the fact that the bank also has call option and the oportunity to demand early execution of the put option wasn’t disclosed then.