Metinvest announces tender results for its 2023 bonds

Metinvest (METINV), Ukraine’s largest steelmaker, was
tendered USD 639.9 mln of its METINV’23 notes by the final Oct. 15 deadline for
purchase under the tender offer announced on Sept. 17,
according to the holding’s Oct. 16 release.

Metinvest’s release said that offer conditions have
been satisfied, it will purchase USD 440 mln of the METINV’23 notes, and the
deal’s settlement will take place on Oct. 17.

Recall, the pricing of its planned USD 500 mln
METINV’29 and EUR 300 mln METINV’25 notes, which Metinvest intends to issue to
finance the purchase, was announced on Oct. 1.

Dmytro Khoroshun: With this
liability management exercise, Metinvest has reduced its 2023 note maturity to
around USD 500 mln, decreasing its refinancing risks.

Looking ahead, we estimate that Metinvest’s EBITDA
(including JVs) for 2H19 will amount to around USD 700 mln (FY19: USD 1.6 bln,
-36% yoy). The holding’s net operating cash flow (after interest and taxes, but
before working capital changes) for 2H19 will amount to USD 400 mln, dividends received from Southern Iron Ore will be USD 107 mln,
and the net cash inflow from the liability management exercise will be USD 330
mln. These cash inflows – together with USD 279 mln of cash Metinvest had at
the beginning of 2H19, less USD 200 mln as the cash target for the end of 2H19
– result in about USD 910 mln for the holding to spend on CapEx, returns to
shareholders, and replenishment of working capital during 2H19.

Assuming CapEx of USD 460 mln for 2H19 (for the FY19 total
of USD 900 mln) and no outflows for trade working capital (which amounted to
14% of LTM revenue at the beginning of 2H19, compared with 18% at the end of
2017 and 16% at the end of 2018), the maximum amount of dividends Metinvest
will be able to pay without additional cash inflows will be about USD 450 mln.
This is below the approximately USD 520 mln we calculate Metinvest is allowed
to distribute to shareholders after it had published its 1H19 financial
statements.

At the end of 2019, Metinvest’s net debt will amount
to USD 2.9 bln, about 1.8x its LTM EBITDA including JVs and 2.1x its LTM EBITDA
excluding JVs, we estimate.

We maintain our bullish view on METINV bonds.