Such efforts, and a focus on developing higher quality thermal coal at SUEK Ltd., Russia’s largest producer, aim to increase resilience to roiling markets in recent years. Melnichenko, the nation’s eighth-richest man with a fortune of about $10.3 billion, ranked as high as fourth at the end of 2013 before a slump in commodity prices, according to Bloomberg Billionaires Index data. He’s the youngest Russian on the index’s global top 400 list.
A fertilizer glut has cut prices 20 percent to 30 percent this year. That helped drive EuroChem’s second-quarter earnings before interest, taxes, depreciation and amortization down almost 40 percent and its net debt to 2.39 times long-term earnings, from 1.56 a year before.
Grand Designs
But just as the radical design of Melnichenko’s yacht won over early doubters, the billionaire has managed to keep EuroChem’s creditors on side with his uncompromising plans to expand in spite of weaker markets.
The company remains committed to spending more than $6 billion to build two Russian potash mines producing 8 million metric tons of the fertilizer a year, a 10th of current world output. That’s as potash prices sank to a decade low this year. Plans for an ammonia and urea plant in Louisiana are still on track, Chief Financial Officer Andrey Ilyin said last month.
It helps that EuroChem’s costs are competitive, even more so after the depreciation in the Russian ruble. Its mining costs will be below $40 a ton, compared with $90-$100 a ton for Canada’s Potash Corp. of Saskatchewan Inc. and the U.S.’s Agrium Inc., according to estimates by VTB Capital.
"I am not worried about short-term volatility, especially as I see our advantages over competitors," Melnichenko said in the interview. The billionaire reinforced his commitment to EuroChem on Wednesday with an offer of $1 billion in perpetual funding from his AIM Capital finance unit. That figure may reach $1.5 billion, the company said.
Lenders are also on board.
The producer this month gained an $800 million pre-export loan from 12 international banks, partly to refinance its debt. It’s planning to fund a repurchase of borrowings with a new sale of Eurobonds, which it is marketing now. The company, which has to repay $1.4 billion next year, will bring debt below $3 billion within eight months from $3.3 billion now, and pare investment and net working capital.
“Further market weakness would increase risks," Egor Fedorov, an analyst at ING Bank NV in Moscow, said by phone. “But so far, the lenders still believe in the company and are ready to work with it.”
This article was provided by Bloomberg News.