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Russia’s biggest steel mill receives US$ 35 million trade credit from EBRD
The European Bank for Reconstruction and Development (EBRD) is extending a revolving trade finance facility ofUS$ 35 million (€33.3 million) to OAO Severstal, the largest steel company in Russia and the sixth biggest in Europe. The facility is expected to lead to additional longer-term financing by the Bank for Severstal’s anticipated capital investment plans.
The aim of the trade facility is to provide a more tax-efficient and flexible form of pre-export finance, reopening access to a type of funding that was widely available before the August 1998 financial crisis. The funds will be used to pay for raw materials, energy and other services involved in the manufacturing process.
"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 Russia Team and the EBRD’s resident representative in Russia. "The EBRD remains committed to assisting the restructuring efforts of Russian companies that have evolved a clear and effective strategy."
Situated at Cherepovets in Russia’s north-western Vologda region, Severstal was built after World War II and is one of the big three Russian steel producers. It was privatised in 1993 and employs 44,000 workers. Thanks to its geographical location, it benefits from high-quality but low-cost raw materials. It boasts the lowest production costs of any Russian steel mill.
"In a country where steel production has fallen by 70 per cent over the past decade, Severstal is the steel producer that has gone furthest in the transition from Soviet-era production – with its emphasis on high volumes – to one driven by quality and demand for products with higher added value," Ms Pilipovic-Chaffey added.
As part of the agreement with the EBRD, Severstal has committed itself to a short-term environmental plan, including the planned closure of its open-hearth furnace operations in 2001.
Severstal, which had aggressively expanded its sales in North America, was hit hard by the imposition of export quotas in 1999 by the United States. It has since diversified to Asian and other markets, and aims to minimise future anti-dumping disputes by focusing on the export of specialised and value-added steel products to markets where these do not compete with local production.
According to preliminary figures given by Severstal Finance Director Mikhail Noskov, the 1999 operating profit based on International Accounting Standards (IAS) will be around US$ 300 million compared with a US$ 219 million in 1998. Revenue fell about 20 per cent to US$ 1.46 billion in 1999 due to weak steel prices while output of steel products rose to 7.84 million tonnes last year against 7.39 million tonnes in 1998, Mr Noskov said. The company has been cutting the level of barter since the mid-1990s and says that 98 per cent of its domestic sales are now for cash.
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