Russia proposes support for struggling metals firms

By Svetlana Burmistrova

MOSCOW, Dec 3 (Reuters) - Russia is preparing to ramp up state support for its heavily indebted metals and mining companies with extra cash help and by scrapping certain export duties on metals, documents seen by Reuters showed on Tuesday.

The proposed measures include money to help to shut down plants and provide better state guarantees for debt refinancing.

The metals firms, most of which belong to billionaire oligarchs loyal to the Kremlin (Hamburg: KMLK.HM - news) , have struggled to turn a profit since signs of a growth slowdown in China and stagnation in crisis-hit Europe sent prices tumbling.

The draft recommendations on state support follow a meeting between Prime Minister Dmitry Medvedev and metals firms, including aluminium producer Rusal, coal miner Mechel (MCX: MTLR.ME - news) and steelmaker Evraz (LSE: EVR.L - news) , to discuss their debt loads and ways to boost industrial growth on Nov. 25.

Medvedev will ask the government to develop a total of 11 support measures, including cash to help firms bankroll the mothballing of plants and the provision of social benefits to laid-off workers.

The measures are detailed in the minutes of Medvedev's November meeting, a copy of which was seen by Reuters. The recommendations have not yet been approved with different deadlines set for the 11 proposals.

While the whole industry is under pressure on a global level due to sustained weak prices, Mechel, Rusal and Evraz are particularly vulnerable due to their high debt levels.

One of the new draft measures involves the Kremlin implementing an improved mechanism of state guarantees for refinancing debt built up during large-scale investment programmes.

This would be a boon to Mechel, which is currently undergoing protracted negotiations to restructure its debt of $9.6 billion. The firm's debt to core profit ratio was 9.0 in the first quarter, while one of its covenants states the ratio should not have exceeded 7.5 in the first half of 2013.

Mechel said on Tuesday it had reached a deal to extend the grace period and maturity of a $1 billion syndicated loan, bringing some relief to talks with creditors.

Net (Frankfurt: NETK.F - news) debt to core profit (EBITDA) ratio, a measure of a company's ability to pay off debts, stood at 11.8 at Rusal in the first six months of the year, and 4.0 at Evraz. Rusal's debt was $10.1 billion at the end of the third quarter.

Another proposal is the scrapping of a 5 percent export duty on nickel and copper in 2014, two years earlier than planned.

The move will benefit Russian mining giant Norilsk Nickel , the world's biggest nickel producer.

A government spokesman declined to comment.