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Severstal may borrow to finance new capex surge

Russian steelmaker Severstal will ramp up investments by 75% next year, a decision which may require borrowing. Severstal’s CFO Alexey Kulichenko said “A significant proportion of the investment is related to cost savings including putting conveyor belts in our iron ore mines and saving on transport costs. A few others are related to quality and product mix. Each of the projects we are going to invest in has a strong rationale in terms of high internal rate of return and significant core earnings contribution.”

Investment will mostly be funded by the company’s cash flow. But some additional borrowing may be required. CFO said “We may borrow from the banks, we may issue debt. It will be moderate, maybe USD 200 million to USD 400 million. Whether we borrow or issue debt depends on how the market situation develops.”

The company announced a string of projects that will see capital expenditure rise to around USD 1.4 billion next year and in 2020, from an average of USD 800 million in the previous 7 years. After peaking over the next two years, capital expenditure will return to USD 750 million by 2023.
Source : REUTERS
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