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The European Bank for Reconstruction and Development (EBRD) is to lend US$90mn to a joint venture bringing together the world’s number 1 steel producer, Arcelor, and

  • Russia’s leading steelmaker, Severstal, to make galvanised steel, mainly for the Russian automotive industry.

    The deal witnesses the longest maturity for a Russian steel borrower and breaks ground as the EBRD’s first project finance transaction with a majority-owned Russian sponsor since the 1998 Russian financial crisis. Severstal owns 75% of the joint venture with Arcelor holding the remaining 25%.

    Of the seven-year loan’s US$90mn, US$33.25mn has been syndicated to four financial institutions ING Bank (US$10mn), Credit Lyonnais, Raiffeisen Zentralbank Oesterreich, and Canada’s International Finance Participation Trust (US$7.75mn each)

    The $56.75m seven-year “A” loan will be provided by the EBRD.

    Severstal last borrowed in August 1999 with a US$20mn one-year facility through mandated arranger Standard Bank.

    The joint venture, the first major one in the Russian steel sector, will build a new plant at Severstal’s facilities in Cherepovets, 400km north of Moscow. The plant is by 2007 expected to produce up to 400,000 tonnes of hot dip galvanised steel a year.

    The new galvanised steel line will use Arcelor proprietary technology to produce the branded Extragal steel, but represents a switch to higher value-added products rather than an increase in capacity. Production is scheduled to begin in 2004. The process will involve double-coating flat steel products with zinc to increase its resistance to rust.

    Today only 4% of the steel used in the manufacture of an average Russian vehicle is galvanised, compared with over 60% in Europe.

    This is a transaction that will improve the availability of high-quality steel in Russia, assist in bringing world standards to the products of the Russian automotive industry and make Russia a more attractive location for automotive production, both for domestic companies and for joint ventures, says Noreen Doyle, first vice-president of the EBRD.