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. Last Updated: 07/27/2016

EBRD Extends $35M Credit Line to Severstal

The European Bank for Reconstruction and Development opened on Friday a $35 million revolving credit line to Severstal, the nation's No. 1 steel smelter, to be used for pre-export financing.

The deal allows Severstal to draw funds of up to $35 million for 90 days to pay for manufacturing components such as raw materials and electricity, EBRD officials said. Severstal in return will implement a short-term environmental plan that will see it close its open-hearth furnaces next year.

"This credit will allow us to greatly improve our working capital situation and use more of our profits for other purposes," Severstal director Alexei Mordashov said Friday.

"We are very happy to begin cooperation with Severstal, one of Russia's model companies, which has until now been operating on a cash basis with its suppliers," said Dragica Pilipovic-Chaffey, director of the EBRD's Russia team.

The agreement is the first of several deals expected to be reached between the EBRD and Severstal this year. Both sides are negotiating on a longer-term credit, Pilipovic-Chaffey said.

Severstal needs some $150 million in financing to upgrade and streamline its operations, Mordashov said. That sum is expected to grow to $350 million over the next three to four years, he said.

Severstal produced 3.9 million tons of steel over the first five months of 2000 compared to 9 million tons for all of 1999, the company said. Net sales last year came in at 35.97 billion rubles ($1.46 billion according to the company's estimates). Net sales from January to May totaled 24.01 billion rubles.

Severstal officials acknowledge that the smelter has been hit hard by an anti-dumping agreement reached between Moscow and Washington last year that slaps stiff quotas on its U.S. exports. Mordashov said exports dropped from 60 percent of the smelter's production in January to 48 percent in June. Exports stood at 56 percent of output in 1999.

Severstal is trying to make up for the loss of the U.S. market by increasing exports to other markets like Asia. "The situation is pretty hard for us, but we have found new places to export our steel," Mordashov said.

Severstal plans to hold talks about the quotas with the U.S. Commerce Department next week, though it does not hope for any breakthroughs, he said.

The Severstal agreement signed Friday is the first of a handful of loans to the domestic metals sector, Pilipovic-Chaffey said. The EBRD will extend a $17 million credit to the Chelyabinsk Zinc Smelter next week, and a $5 million deal will be signed with the Yekaterinburg-based Viz-Stao steel mill shortly thereafter, she said.