Ferrexpo credit rating raised by S&P to B/Stable

S&P raised the long-term corporate credit rating of
iron ore miner and pellet maker Ferrexpo (FXPO LN, FXPOLN) to B from B- with a
Stable outlook, the ratings agency reported on Jan. 30. “The upgrade reflects
the additional clarity and comfort we have gained on higher pellet premiums for
2018, which makes the company’s potential financial results clearer,”
S&P reported.

The rating agency expects Ferrexpo’s EBITDA to amount
to USD 500-600 mln in both 2017 and 2018 before dropping in 2019 due to a
decline in pellet price premiums. Following the arrangement of a USD 195 mln PXF, and
expecting strong profitability and cash flow generation, Ferrexpo will be able
to serve USD 350 mln in debt maturities in the next 12 months, S&P wrote.
These maturities include the USD 173 mln Eurobond redemption on Apr. 7.
However, the second Eurobond redemption of USD 173 mln in April 2019 will need
to be refinanced in part or in full, and there is “some refinancing risk”
related to this redemption, the rating agency said.

Ferrexpo is now rated by S&P one notch above
Ukraine’s sovereign level, B-. Further S&P upgrades of Ferrexpo would
require an upgrade of the sovereign rating, the agency noted.

S&P’s previous action on Ferrexpo was a Dec. 29, 2017
revision of outlook to Positive from Stable. Currently, Ferrexpo is rated at B/Positive by Fitch and at
Caa1/Positive by Moody’s. Following this S&P upgrade, all three major
rating agencies currently rate the company one notch above sovereign.

Dmytro Khoroshun: Under the profitability scenario constructed by S&P, and provided
that Ferrexpo’s operating cash conversion remains strong, we estimate that the
company will need to refinance less than USD 100 mln in early 2019 in order to
meet the April 2019 Eurobond redemption. This seems very feasible provided
pellet prices do not drop too much by then. Nevertheless, we retain our neutral
view on Ferrexpo Eurobonds.