Annual Report & Accounts 2015

Financing and Liquidity

At the beginning of 2015, total debt was US$6,907 million.

In 2015, EVRAZ carried out numerous refinancing transactions aimed at improving the Group's debt profile and reaching a comfortable liquidity position for upcoming maturities.

In March 2015, the Group settled the 8.75% rouble notes due in 2015 in full and the related liabilities under swap contracts. The total cash outflow amounted to US$123 million.

In April 2015, EVRAZ partly repurchased below-par 9.95% Rouble notes due in October 2015 with a principal of RUB4,150 million and terminated the respective swap contracts; the total cash outflow amounted to US$141 million. In October 2015, EVRAZ fully settled 9.95% rouble-denominated bonds due in 2015 with a principal amount of RUB15,000 million, out of which bonds with a principal amount of RUB10,850 million (c.US$175 million at the exchange rate as of the repayment date) were held by various investors, as the remainder had been previously repurchased (pls, see Note 22 for more detail).

In April 2015, the Group completed a share buyback via a tender offer of 108,458,508 ordinary shares for US$3.10 per share. The total cash used amounted to US$339 million.

In April 2015, EVRAZ signed a new €475 million loan agreement with Gazprombank and simultaneously repaid an existing US$500 million loan due to mature in December 2016 from the same bank. The new loan is repayable in two instalments: 30% of the principal in June 2018 and 70% in June 2019. In December 2015, this loan was partly converted into roubles, and as of the year-end, it comprised a rouble part of RUB18 billion and a euro part of €240 million.

In July 2015, the Group issued a RUB15 billion (c.US$270 million at the exchange rate as of the date of the transaction) bond with a four-year put/call option at a coupon rate of 12.95% per annum payable semi-annually. Proceeds from the issue were used to refinance existing indebtedness, thus not increasing total debt.

Later in July 2015, EVRAZ partly repurchased 8.40% rouble-denominated bonds due in 2016 with a principal of RUB4,792 million (US$84 million at the exchange rate as of the date of the transaction) for a cash consideration of RUB4,696 million (US$82.5 million at the exchange rate as of the date of the transaction). The Group has also terminated related cross-currency swaps with a total notional amount of US$169 million for a cash consideration of US$90 million.

In July 2015, EVRAZ NTMK borrowed a US$200 million term loan from Alfa Bank with a guarantee from EVRAZ plc. The loan is repayable in a single bullet instalment on 12 July 2019. The proceeds were used for refinancing current indebtedness.

In August 2015, EVRAZ NTMK signed a five-year US$125 million term loan facility agreement with UniCredit Bank, Moscow, with a guarantee from EVRAZ KGOK. The loan was fully drawn on 24 September and will be amortising in quarterly instalments starting November 2017 and ending August 2020. The proceeds were used for refinancing current indebtedness.

In August 2015, EVRAZ NTMK signed a five-year US$100 million term loan facility agreement with Nordea Bank, Moscow, guaranteed by EVRAZ plc. The loan was fully drawn on 20 October and will be amortising in quarterly instalments starting September 2017 and ending August 2020. The proceeds were used for refinancing current indebtedness.

In September 2015, EVRAZ partly repurchased an additional portion of its 8.40% rouble bonds due 2016 with a principal of RUB3,159 million (c.US$48 million) at par value and terminated related cross-currency swaps with a total notional amount of US$111 million for a cash consideration of US$66 million.

In October 2015, EVRAZ NTMK entered into a framework multicurrency facility agreement with VTB Bank governing the general terms and conditions of loans of up to five years with a total borrowing limit of RUB30 billion equivalent. Any and all debt outstanding under the agreement is guaranteed by EVRAZ plc. In November 2015, EVRAZ NTMK borrowed a US$200 million term loan under this framework facility. The loan will be amortising in quarterly instalments starting November 2018 and ending October 2020. The proceeds were used for general corporate purposes and refinancing of the current debt. In December 2015, EVRAZ NTMK borrowed an additional US$145 million term loan under this framework facility. The loan will be amortising in quarterly instalments starting December 2018 and ending October 2020. The proceeds were used for refinancing current debt.

As a result of a tender offer and other transactions carried out in October and November 2015, EVRAZ Group S.A., a direct wholly owned subsidiary of EVRAZ plc, became the holder of US$214 million of aggregate principal amount of the 7.75% loan participation notes due 2017 issued by Raspadskaya. As of the year-end, US$186 million of these notes remained held by third parties.

In December 2015, EVRAZ prepaid the Mezhegey project finance facility totalling US$144 million and terminated the facility agreement.

In December 2015, the Group issued 8.25% notes due 2021 totalling US$750 million. The proceeds were used to finance the purchase of 7.40% notes due 2017, 9.50% notes due 2018 and 6.75% notes due 2018 at the tender offer settled on 18 December 2015 and to refinance other current debt. As a result of this tender offer, EVRAZ has repurchased US$314 million of aggregate principal amount of 7.40% notes due 2017, US$156 million of aggregate principal amount of 9.50% notes due 2018 and US$54 million of aggregate principal amount of 6.75% notes due 2018. The total cash consideration used for the tender amounted to US$556 million.

As a result of these actions, as well as scheduled drawings and repayments of bank loans, total debt decreased by US$183 million to US$6,724 million as at 31 December 2015, while net debt decreased by US$465 million to US$5,349 million, compared with US$5,814 million as at 31 December 2014.

Due to the lower total debt and refinancing initiatives in 2015, interest expenses accrued in respect of loans, bonds and notes were US$430 million in 2015, compared with US$503 million in 2014.

Net debt to EBITDA stood at 3.7 times, compared with 2.5 times as at 31 December 2014.

As at 31 December 2015, debt with maintenance financial covenants tested at EVRAZ plc level amounted to around US$1,938 million. Such debt comprised a €475 million facility from Gazprombank signed in April 2015 which contains a restriction on the maximum ratio for the consolidated net indebtedness to 12-month consolidated EBITDA and a syndicated facility totalling US$500 million and various bilateral facilities totalling around US$929 million where maintenance covenants include two key ratios: a maximum net leverageNet leverage means net debt / EBITDA and a minimum EBITDA interest cover. These two ratios are tested two times a year on a 12-month basis and the strictest levels are 4.5x and 2.5x, respectively.

As at 31 December 2015, EVRAZ was in full compliance with its financial covenants.

As at 31 December 2015, cash amounted to US$1,375 million and short-term loans and the current portion of long-term loans stood at US$762 million. They are mainly represented by capital market instruments, particularly rouble-denominated notes adjusted for respective hedging exposure.

Cash-on-hand and committed credit facilities are sufficient to cover all of the Group's refinancing needs in 2016.

Key recent developments

The first quarter of 2016, the Group repurchased through open market operations and cancelled US$19 million of aggregate principal amount of 7.40% notes due in 2017 on the open market for a cash consideration of US$20 million. Following these transactions, the current outstanding amount on the notes totals US$267 million.

In the same period, EVRAZ Group S.A., a wholly owned subsidiary of EVRAZ plc, has similarly repurchased US$78 million of aggregate principal amount of the 7.75% loan participation notes due in 2017 issued by Raspadskaya for a cash consideration of US$79 million. Following these transactions, EVRAZ Group S.A. has increased its holding in these notes to US$292 million of aggregate principal amount, with a remaining US$108 million being owned by third-party investors.

In the first quarter of 2016, EVRAZ NTMK and EVRAZ ZSMK have voluntary prepaid several of their term loans from international banks which totaled US$130 million as of 31 December 2015.