Mechel loses control over European trader after inclusion in SDN list, estimates losses at 12 bln rubles

MOSCOW. Aug 22 (Interfax) - Mechel Group , which was included in the U.S. Specially Designated Nationals and Blocked Persons (SDN) List in February 2024, has lost control over its European subsidiaries owing to the inability to conduct business operations in European markets, the mining and steel company said in its half-year report.

Mechel estimates losses at 14 billion rubles from having lost control and having the group's foreign assets decommissioned.

An official representative of Mechel told Interfax that the Mechel-Service Global metal trader is particularly involved within the context of the loss of 14 billion rubles. Mechel-Service Global enterprises had installed firewalls as a protective measure to continue their activities.

"In accordance with EU regulations, the measures are aimed to divest a sanctioned legal entity from control over an unsanctioned legal entity registered in the EU. Consequently, local management independently oversees the operations of the companies included in Mechel-Service Global, providing no financial and/or operational information to PJSC Mechel, thus the company suffered losses of 12.3 billion rubles. The company suffered an additional loss of 1.7 billion rubles from the forced sale of a coal trader in Asia," Mechel said.

The company's half-year report indicates that the group also concluded a number of contracts in August 2024 to sell several of its European subsidiaries to a third party. Projected profit is estimated at 5-7 billion rubles, excluding taxes.

This involves companies in Switzerland, as well as the Lithuania-based Mechel Nemunas metallurgical plant.

The company told Interfax that the indicated, expected profit has been calculated to International Financial Reporting Standards based on decommission in the report. Specifically, a substantial amount of exchange rate differences has accumulated in the group's capital for the companies. The accumulated profit will be reclassified in the current result for the period upon decommissioning.