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EBRD lends $90 million for new steel project in Russia
World No 1 Arcelor and Russia's Severstal to target domestic auto industry
The European Bank for Reconstruction and Development will lend $90 million to a joint venture bringing together the world's No 1 steel producer, Arcelor, and Russia's leading steelmaker, Severstal, to make galvanised steel, mainly for the Russian automotive industry.
Of the seven-year loan's $90 million, $33.25 million has been syndicated to four financial institutions - ING Bank N.V., Credit Lyonnais, Raiffeisen Zentralbank Oesterreich, and Canada's International Finance Participation Trust - highlighting the growing appetite in the West for well-structured transactions in Russia.
The joint venture, the first major one in the Russian steel sector, will build a new plant at Severstal's facilities in Cherepovets, 400 km north of Moscow. The plant is by 2007 expected to produce up to 400,000 tonnes of hot dip galvanised steel a year.
The deal also breaks new ground as the Bank's first project-finance transaction with a majority-owned Russian sponsor since the 1998 Russian financial crisis. Severstal owns 75 per cent of the joint venture - with Arcelor holding the remaining 25 per cent.
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 per cent of the steel used in the manufacture of an average Russian vehicle is galvanised, compared with over 60 per cent 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, said Noreen Doyle, First Vice President of the EBRD, at a signing ceremony in Paris.
The entry of the world's No 1 steelmaker into the Russian market and the high-tech contribution it is bringing in the form of its patented process sends a very important signal about the business opportunities that other foreign investors could find in Russian industry today, Ms Doyle added.
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