Russian steel producers whose debt level exceeds three times core earnings will be seriously threatened by the current crisis, Credit Suisse analyst Semyon Mironov said on Thursday.
"At the moment those companies whose debt is three times EBITDA (earnings before interest, taxation, depreciation and amortisation) or higher, for example, Mechel and Severstal sincerely hope that the crisis ends in the near future and that the nadir will be in 2009," Mironov told reporters.
He added should the crisis extend for three years their existence could be threatened.
Mironov also said that for the next 6-12 months the issue of debt refinancing has been solved thanks to assistance from government banks.
The government has allocated about $50 billion to help Russian companies refinance a total $120 billion of foreign loans due by the end of 2009.
The analyst said that Novolipetsk Steel, Magnitogorsk Iron & Steel Works are well positioned to survive the downturn since they have low production costs and are operating at a relatively high level of capacity.
"Companies will survive that do not have too much debt and whose production costs allow them to lower prices to a minimal level while operating at least 70 percent capacity," Mironov said.
He added that Norilsk Nickel shares are currently being supported by the possibility of a merger with Metalloinvest, Russia"s largest iron ore producer.
Mironov noted that Metalloinvest, half-owned by billionaire Alisher Usmanov, values Norilsk Nickel at almost $42 billion, although its market cap is about $8.4 billion following share price declines in the past 12 months.
A possible tie up between the two mining giants has been widely reported in the Russian press.
However, chief executive Vladimir Strzhalkovsky last week said his company was not in concrete discussions with Metalloinvest.