Metinvest production slows in Sept.-Oct., debt operations to finish soon

Ukraine’s leading metals and mining holding Metinvest (METINV) is finalizing its talks with creditors on its long-term debt restructuring, Interfax-Ukraine reported on Oct. 10, citing the holding’s CEO Yuriy Ryzhenkov. “I think that we can announce the deal in the nearest time,” he said, expressing his hopes that the restructuring will be completed by the end of the standstill, or by Nov. 30.

Ryzhenkov also commented on Metinvest’s current operations, reporting that in September the holding’s steel output has declined “by more than ten percent.” The decline is related to limited supply of inputs to Metinvest’s Mariupol-based steel mills, which is a result of the overhaul of the railway connection with Mariupol. Such repairs will continue in October as well, which will allow the holding to “catch up” by expanding steel production as of November.

Alexander Paraschiy: Despite a slowdown in output in September (company-wide details for the month have yet to be reported), Metinvest was able to imporve its cash flow generation and increase interest payments to debt holders, as it reported on Oct. 7. The announced limited output in October adds some risk that cash interest payments this month will decrease. Nevertheless, we remain bullish on Metinvest Eurobonds (trading now at 79%-80% of par). Based on its possible restructuring terms announced in May, we estimate the bond’s current prices are close to the expected NPV of their cash flows, assuming a discount rate of 15% and the minimum of the agreed-upon cash coupons. However, if we take the discount rate that is currently being applied to the Eurobonds of the related First Ukrainian International Bank (PUMBUZ,  YTM is 12.5%), this implies an increase of the bond’s NPV to 90% of par. This is what we expect could happen soon after the bond’s restructuring is completed.