Metinvest might bid for assets of flat re-roller in Poland

Ukraine’s largest steel producer Metinvest (METINV)
might participate in a tender for the PP&E assets of Huta Czestochowa, a
producer of thick plates in Poland, according to Metinvest’s Feb. 25 comments
to Interfax-Ukraine.

 

The news agency reported on the same day that
Antimonopoly Committee of Ukraine (AMCU) on Feb. 27 plans to rule on preliminary
conclusions regarding whether Metinvest needs to obtain AMCU’s permission for
acquiring Huta’s PP&E assets. A Metinvest representative commented to
Interfax-Ukraine that Huta is currently under bankruptcy proceedings and that a
tender for the sale of Huta’s PP&E assets might take place tentatively in
August-September. Obtaining AMCU’s conclusion on Metinvest’s potential purchase
of Huta’s PP&E assets is a standard procedure for preparing for such
tenders, according to the Metinvest representative as cited by
Interfax-Ukraine, who added that the initial price and other tender conditions
are currently unknown.

 

Recall, in September 2019 it was reported that Metinvest was considering leasing and eventually acquiring
Huta, but the Polish plant was in the end leased by Sunningwell International Polska,
a finance company with links to China.

 

Dmytro Khoroshun: Acquiring
European flat steel re-rolling capacities will be a very logical M&A move
for Metinvest. Metinvest produced 1.9 mmt of merchant slabs for sales to third
parties in 2019, which more than covers the 1 mmt annual capacity of Huta’s
flat re-rolling mill 3600 cited in the media.

 

Furthermore, if Metinvest expands steel production at
its Ukrainian plants by 3 mmt, as the holding reportedly plans to do in the
next several years, it is likely to further expand the volume of slabs it would
be able to supply to re-rollers in regions protected by trade barriers, first
and foremost the EU.

 

In the past, Huta relied on slab supplies from
Alchevsk Steel, a Ukrainian steelmaker located on territories currently
temporarily not controlled by Ukraine’s government. After control over Alchevsk
Steel was lost due to the war in Donbas, Huta reportedly resumed slab
production using its own electric-arc furnace capacities (0.5-0.6 mmt of steel
per year), but by September 2019 the plant was reportedly completely idle.

 

We think that Huta’s value to Metinvest is its
re-rolling capacities, and that Huta is unlikely to resume its own steelmaking
operations if its PP&E assets are acquired by Metinvest.

 

We estimate the enterprise value of a 1 mmt per year
flat re-roller might be as high as USD 300-600 mln. We think that such an
amount might prove difficult for Metinvest to pay given its current financial
shape. Recall, in November Metinvest’s EBITDA was negative
while its gross debt reached USD 3.0 bln. We expect Metinvest’s monthly EBITDA
to remain below USD 100-120 mln per month in 1H20.

 

We maintain our neutral view on METINV bonds.