On 15 July 2009, Mechel OAO (Mechel) released its 1H 09 production update, which noted a q-o-q rebound in production across most parts of the business. Although we are encouraged by this, we remain concerned about the company's high degree of leverage and disappointing 1Q 09 results reported on 10 July 2009. Therefore, we maintain our 6-12 month SELL rating. We will reassess our ADR (1 ADR = 1 Russian share) rating in our next update report....

Mechel's gross debt at the end of FY 2008 stood at US$5.4 bn, with a repayment obligation of US$1.6 bn to be made in FY 2009. The rising debt has resulted in an unprecedented 227.4% y-o-y growth in interest expenses to US$324 mn in FY 2008 and led the debt-to-equity ratio to escalate from 1.0 at the end of FY 2007 to 1.3 at the end of FY 2008. If the company is unable to make the scheduled repayments within the stipulated periods…

On 24 April 2009, Mechel OAO (Mechel) reported a gross y-o-y decline in production during 1Q 09, reflecting a sharp fall in demand from the construction and machinery industries. Going forward, although we remain concerned about Mechel’s high level of debt, we are encouraged by its moves to acquire Bluestone Coal Group, which should enhance its long term growth prospects (refer to our company news alert dated 23 April 2009). Therefore, although the target…