June 17, 2015 / 3:10 PM / 4 years ago

UPDATE 1-Russia's Evraz has no plan for share buyback in 'challenging' market

(Adds more quotes from CFO)

By Maytaal Angel

LONDON, June 17 (Reuters) - Russia’s Evraz, one of the country’s largest steelmakers, said on Wednesday it has no plans for further share buybacks in a ‘challenging market’ and would need to see a reduction in net debt before considering paying dividends.

Russia’s economy is expected to shrink by 2.5-2.8 percent this year under pressure from a fall in oil prices and from Western sanctions imposed on Moscow over the crisis in Ukraine.

Evraz said in April it would return up to $375 million to its shareholders as part of a tender offer after its 2014 core earnings rose on a weaker rouble.

However, the market situation has deteriorated this year.

“We have no plans for further share buybacks. We believe we are in a much more challenging market environment overall ... so we’ll be prioritising deleveraging and keeping a liquidity cushion over all other capital deployment options,” its chief financial officer, Pavel Tatyanin, told Reuters in London.

He added that the company’s dividend policy had also changed slightly, as it battles falling global steel prices ST-CRU-IDX and a contraction of up to 20 percent in the construction steel market in Russia.

In order to consider paying dividends, Evraz would not only need to see a net debt to earnings before interest, taxation, depreciation and amortisation (EBITDA) ratio below three, but would also look for a reduction in overall net debt every six months. The net debt to EBITDA ratio was 2.5 at the end of 2014.

“We may consider paying out dividends but our key priority is deleveraging,” Tatyanin said.

Demand for construction steel in Russia has been hit hard by sanctions, which have hurt investment demand and limited the availability of funding for end users who buy steel from Evraz.

“We’re seeing a decline in demand for construction products of between 20 to 35 percent this year versus last in the Russian market (and) we do not see a recovery coming soon,” Tatyanin said.

Margins at Evraz and other Russian steel companies benefited from a decline in the rouble against the dollar last year, as their costs fell in dollar terms.

The Russian currency has largely stabilised this year, but Tatyanin does not expect the stability to last.

“The rouble to dollar rate in our budget is 60 (for 2015). The rouble is around 55 these days so we expect to benefit from a higher rouble-dollar rate going forward,” he said.

In North America, Evraz has for now suspended its plans for an initial public offering (IPO), due in part to weaker demand, especially from the oil and gas industry where prices have fallen sharply.

Evraz said this month it had temporarily halted work at its North American Pueblo production plant due to weaker demand.

Reporting by Maytaal Angel; Editing by Dale Hudson and Susan Thomas

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