Metinvest EBITDA drops 26% m/m in April

EBITDA at Ukraine’s largest steelmaker Metinvest (METINV)
dropped 26.3% m/m to USD 126 mln in April, according to its monthly results
published on July 1. The holding’s revenue lost 13.2% m/m to USD 742 mln.

 

EBITDA excluding that of joint ventures (JVs)
decreased 22.4% m/m to USD 111 mln in April.

 

Metinvest’s operating cash flow before working capital
changes slid 35.4% m/m to USD 84 mln in April, whereas cash flow from
operations after working capital changes (but before profit tax and interest)
plunged 76.7% m/m to USD 52 mln in April.

 

Cash flow due to changes in accounts receivable was a
positive USD 37 mln in April, compared with a negative USD 94 mln in March.
Cash flow due to changes in accounts payable was a negative USD 70 mln in
April, compared with a positive USD 199 mln in March.

 

The holding’s cash outflow from investment activities
dropped 33% m/m to USD 67 mln. Metinvest’s outflow from financing activities
amounted to USD 11 mln and its end-of-month cash balance decreased 17.7% m/m to
USD 270 mln. Its gross debt dropped USD 34 mln m/m to USD 3,073 mln, while net
debt increased USD 24 mln m/m to USD 2,803 mln.

 

Metinvest’s metallurgical segment EBITDA (including
JVs) plunged 40.7% m/m to USD 64 mln in April, while its mining segment EBITDA
slid 6.0% m/m to USD 94 mln.

 

Excluding JVs, Metinvest’s metallurgical segment
EBITDA lost 41.4% m/m to USD 65 mln in April, while its mining segment EBITDA
advanced 13.0% m/m to USD 78 mln.

 

The ratio of Metinvest’s net debt to its last-12-month
(LTM) EBITDA (excluding JVs) rose to 2.96x at the end of April, up from 2.84x a
month ago.

 

In 4M20, Metinvest’s revenue dropped 14.1% yoy to USD
3,278 mln, while its EBITDA including JVs dropped 17.9% to USD 499 mln and
EBITDA excluding JVs lost 18.4% yoy to USD 439 mln.

 

Iron and steel product prices showed mixed m/m
dynamics in April, losing 10% for pig iron and 3% for billets, gaining 3% for
slabs, and remaining flat for flat and long finished products. Its iron ore
concentrate price slid 3% m/m, while the pellet price inched up 3% m/m.

 

Dmytro Khoroshun: Metinvest’s
net leverage has approached its 3x limit as of end-April, raising questions
about compliance with a maintenance covenant. We expect the holding to avoid
default by obtaining a waiver or an amendment for its PXF loan covenants, if
necessary.

 

In detail, Metinvest’s net debt-to-LTM EBITDA
(excluding JVs) below 3x is a maintenance covenant under its bank loans and is
up for a test as of June 30. This net leverage parameter reached 2.96x at
end-April, uncomfortably close to the 3x limit and raising the question of
whether Metinvest will be in compliance by end-June. This issue of the upcoming
net leverage covenant test was a reason for S&P putting Metinvest’s rating on CreditWatch Negative at
the end of March.

 

We calculate that Metinvest needs a monthly EBITDA
(excluding JVs) of USD 103 mln on average in May-June in order to keep this
parameter below 3x (assuming net debt of USD 2.08 bln, the same as in
end-April). This level of profitability is possible but not guaranteed because
of the steel price slump thatstarted in late March and lasted
until early May.

 

But even if Metinvest exceeds its 3x limit on net leverage
as of end-June, we agree with S&P’s opinion
that the holding is more likely to obtain a waiver or an amendment from its PXF
creditors for the end-June test.

 

We maintain our negative view on METINV bonds.