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Russia's top steel producer receives US$ 118 million in EBRD financing
With long-term financing still not easily available to leading Russian companies, Oskol Electrometallurgical Plant, Russia's most modern and highly automated steelworks, has turned to the European Bank for Reconstruction and Development (EBRD) for a US$ 118 million (ECU 107 million) financing package, allowing it to proceed with its modernisation and expansion programme.
"Oskol embodies many of the qualities that the EBRD looks for when lending its funds," said Reinhard Schmoelz, Director of the EBRD's Russia Team. "This Russian manufacturing company is in the process of improving and expanding its capacity. By increasing its output of higher-value steel, Oskol will be able to offer a highly competitive product domestically, as well as strengthen its international competitiveness in a very tough market."
The EBRD's package comprises an 8.5 year US$ 100 million loan, of which the EBRD intends to syndicate US$ 30 million to four commercial banks; a 5.5 year revolving US$ 10 million loan for working capital purposes; and a US$ 7.7 million equity investment, which represents 4.37 per cent of Oskol's share capital. An additional US$ 10 million loan is also being provided by International Moscow Bank in a parallel arrangement. Proceeds will help Oskol finance the modernisation of the existing rolling mill "700" and the construction and installation of a building and related infrastructure for a new mill "350".
Founded in 1975, the plant was designed as a large integrated mini-mill with mostly German equipment and its reliance on modern electric arc furnace technology (direct reduction of iron) and continuous casting put it ahead of other steel mills in Russia. Oskol has remained Russia's most modern and efficient steelworks, producing high-quality rolled steel products from 250 steel grades.
The modernisation programme should increase output from the existing mill to 2.27 million tonnes of semi-finished products per year (billets and bar), enabling the company to re-roll another 1.05 tonnes per year of this ouput into high quality engineering steel (light and medium bars) at the new mill. This mill's production will allow Oskol to penetrate the domestic market for engineering steels, a key substitute for current imports. Oskol has a long-term comparative advantage over its international and domestic rivals due to the local supply of high-quality iron ore and low transportation costs for input and shipments to principal customers.
Located in the eastern region of Belgorod, Oskol will be employing 18,000 workers by the end of 1998. As part of the restructuring process Oskol is focusing on its core business. The company is also introducing Western management and marketing skills, appointing an independent share registrar and adopting international accounting/reporting standards, which will help improve corporate governance and advance its management information systems.
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