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One of Russia’s biggest iron pellet producers, OAO Karelsky Okatysh, will be able to increase its efficiency and reduce its costs thanks to a long-term loan of US$60mn to be provided by the European Bank for Reconstruction and Development (EBRD) and ING Bank.

The EBRD will be the lender of record for the full amount under its 8.5-year loan, with US$15mn syndicated to and co-arranged by ING, which is providing a seven-year credit.

Karelsky Okatysh accounts for 17% of Russia’s output of iron pellets, a key ingredient in steel production, and is part of the Severstal group holding’s resource division. The core of the group consists of Russia’s largest steel maker.

Karelsky Okatysh’s share of Russian iron pellet exports was 30% in 2003 – with steel mills in Finland and eastern Europe as its main buyers outside Russia.

As part of a commitment to high standards of transparency, Severstal will adopt a corporate governance code for the duration of the loan. Karelsky Okatysh has in addition agreed to produce financial statements prepared in accordance with international financial reporting standards and implement an environmental action plan agreed with the EBRD, as well as various energy efficiency measures.

Karelsky Okatysh’s willingness to increase its transparency also played a crucial role in securing the loan, which breaks new ground as the first foreign investment in Russia’s non-precious metal mining industry, says Victor Pastor, director of the EBRD’s Russia team.

The iron pellet producer will use the EBRD funds to replace critical equipment at its existing Kostomuksha mine, invest in transportation to improve mining operations and to restructure and reduce non-core assets, as well as optimise its balance sheet by refinancing short-term debt.