Metinvest CapEx to reach USD 1 bln in 2019

Metinvest (METINV), Ukraine’s largest steelmaker,
announced in a Mar. 21 conference call with investors and analysts that its capital
investments will rise about 20% yoy to about USD 1 bln in 2019. The holding’s
CEO, Yuriy Ryzhenkov, said during the call that more than 60% of CapEx will be
for maintenance and about 35% will be for strategic development projects. One
of the main development projects planned for completion in 2019 is the
reconstruction of Mill 1700 at Ilyich Steel. This project will allow the plant
to re-roll into HRC all the slabs it can produce and possibly even re-roll some
slabs from Azovstal, boosting the share of high-value-added products in
Metinvest’s sales portfolio.

Ryzhenkov also said Metinvest plans to boost its steel
production volume by 1 mmt, or 14% yoy in 2019, and to increase iron ore
concentrate production volume by 1.2-1.3 mmt, or 4-5% yoy. Potentially,
Metinvest has the capacity to boost iron ore concentrate production volume by
3-4 mmt, but sales of extra volumes might be unprofitable, the CEO said.

The holding is already contemplating the coming bullet
maturity of its 2023 USD 945 mln Eurobond, and might consider a liability
management exercise if it deems the markets favorable, Ryzhenkov said. During
2019, Metinvest expects new debt to be limited to investment-related facilities
of modest size, he added.

Metinvest does not rule out increasing its 24.99%
stake in Pokrovske Coal assets, potentially consolidating them, but the
details, such as the timeline and the price, were not ascertained during the
call. In particular, Ryzhenkov said that the management of Pokrovske Coal
assets is working with the assets’ creditors on the possible restructuring of
their debt, which we previously estimated to be close to USD 1 bln.

Dmytro Khoroshun: If Metinvest
continues to return funds to shareholders at the rate of USD 0.4-0.5 bln per
year in 2019, its cash outflows might require withdrawals from working capital
or attraction of new debt, but only in a small and manageable amount. We
estimate USD 200-300 mln.

In detail, if Metinvest’s EBITDA, including joint
ventures, amounts to USD 2 bln in 2019, which seems realistic given the current
market conditions, then we estimate that operating cash flow after interest and
income tax, but before changes in working capital, will amount to about USD
1.35 bln. The outflows will be USD 0.15 bln in debt maturities (excluding trade
finance), USD 1 bln in CapEx, and USD 0.4-0.5 bln of dividends, totaling USD
1.55-1.65 bln. Therefore, cash deficit before changes in working capital and
new debt will amount to USD 200-300 mln.

We think that it is realistic for Metinvest to
cover this deficit with investment-related debt facilities and with withdrawals
from its USD 1.9 bln in working capital.