Russian Bank Will Not Bail out Miner Mechel

Russian state-owned development bank Vnesheconombank (VEB) said on Wednesday it would not take part in a bailout of indebted miner Mechel, extinguishing hopes for a convertible bond scheme that was seen as its most likely lifeline.

The loss-making coal to steel group, hit by weak prices for its products, is in critical need of government support. With debts of $8.6 billion, Mechel has already gone through several debt restructurings with creditor banks, which now account for two-thirds of its debt.

In June Economy Minister Alexei Ulyukayev said the government was considering implementing a 180-billion rouble ($5.3 billion) scheme that would involve a convertible bond, which could be purchased by state development bank Vnesheconombank, or VEB.

However on Wednesday VEB chairman Vladimir Dmitriev ruled out the bank participating in the bailout or any other plan to save Mechel, Itar-Tass news agency reported.

"We at the bank have taken the decision not to participate in the suggested schemes to save Mechel. The suggested schemes would be loss-making for the bank," Dmitriev was quoted as saying.

Other plans to help the coalminer include providing monopoly Russian Railways (RZhD) with the funds to buy the rail link to the Mechel's key Elga project for up to 70 billion roubles ($2 billion).

($1 = 33.9670 Russian Roubles)

(Reporting by Alessandra Prentice, Editing by Timothy Heritage)