Metinvest prepares to launch large deal

Metinvest (METINV), Ukraine’s largest steelmaker, is
getting ready to launch a financing or refinancing deal potentially as large as
USD 2.5 bln, according to our analysis of several Interfax-Ukraine reports.
Toward this end, Metinvest is collecting shareholder approval for the top
management of its assets to sign documents related to the future deals.

The holding has already obtained approvals from
extraordinary general meetings held for Inhulets Iron Ore (March 14) and
Central Iron Ore (March 15), which will be followed by Northern Iron Ore (March
16), Avdiyivka Coke and Azovstal (March 19), and Ilyich Steel (March 20), the
reports said.

Dmytro Khoroshun: The value
of Metinvest’s Eurobond is up for investors to lose or to realize. In case
Metinvest offers to buy back its Eurobond, the markets should demand a price
that reasonably reflects the full value of this unique instrument, which we
think is above the recent highs of 106-107% of par.

As we speculated in our March 1 report, Metinvest’s
ultimate motivation for the deal is to be able to pay dividends sooner than
what is allowed under the current debt documentation. In turn, the steelmaker’s
desire might stem from the possible need of its majority owner, Ukraine’s SCM
group, to be able to pay as much as USD 820.6 mln in a posisble award in
relation to a legal dispute over SCM’s acquisitionof Ukrtelecom (UTLM UK).

The London Court of International Arbitrage will reportedly
hold a hearing on this case on Apr. 23 that might trigger the need for SCM to
collect from its assets, including Metinvest, the total sum for paying the
award. Because of the potential urgency for Metinvest to be able to pay its
dividends, the market’s hand in reaching a reasonable Eurobond buyback price
looks rather strong.

We maintain our Speculative Buy recommendation on
the Metinvest Eurobond on expectations of a deal in the near future.