Metinvest EBITDA jumps 33% m/m in March

EBITDA at Ukraine’s largest steelmaker Metinvest
(METINV) jumped 32.6% m/m to USD 171 mln in March, according to its monthly
results published on May 29. The holding’s revenue slid 1.9% m/m to USD 844
mln.

 

EBITDA excluding that of joint ventures (JVs) advanced
20.2% m/m to USD 143 mln in March.

 

Metinvest’s operating cash flow before working capital
changes added 5.7% m/m to USD 130 mln in March, whereas cash flow from
operations after working capital changes (but before profit tax and interest)
skyrocketed to USD 223 mln in March from negative USD 6 mln in February.

 

Metinvest’s cash outflow due to an increase in
accounts receivable plunged 50.8% m/m to USD 94 mln in March. Its cash inflow
due to swelling accounts payable skyrocketed tenfold m/m to USD 199 mln in
March.

 

The holding’s cash outflow from investment activities
jumped 35.1% m/m to USD 100 mln in March. Metinvest’s outflow from financing
activities amounted to USD 27 mln and its end-of-month cash balance increased
29.6% m/m to USD 328 mln. Its gross debt rose USD 15 mln m/m to USD 3,107 mln,
while net debt decreased USD 60 mln m/m to USD 2,779 mln.

 

Metinvest’s metallurgical segment EBITDA (including
JVs) skyrocketed 2.3x m/m to USD 108 mln in March, while its mining segment
EBITDA slid 2.0% m/m to USD 100 mln.

 

Excluding JVs, Metinvest’s metallurgical segment
EBITDA climbed 98.2% m/m to USD 111 mln in March, while its mining segment
EBITDA dropped 15.9% m/m to USD 69 mln.

 

The ratio of Metinvest’s net debt to its last-12-month
(LTM) EBITDA (excluding JVs) inched up to 2.84x at the end of March from 2.83x
the month before.

 

Iron and steel product prices showed mixed dynamics
m/m in March, gaining 6% for pig iron, 1% for slabs, and 2% for flat products,
while losing 2% for billets and 4% for long products. Iron ore concentrate
price slid 1% m/m, while the pellet price inched up 2% m/m.

 

On March 31, S&P put Metinvest’s rating on its
CreditWatch with negative implications due to the risk of a breach of its PXF
financial covenants by the end of June. The rating agency said it expected to
resolve its CreditWatch status for Metinvest by the end of June, stressing that
a covenant breach was less likely than Metinvest obtaining a waiver or
amendment from its PXF for the loan. S&P did not lower Metinvest’s rating
right away because the agency thought that PXF lenders are likely to amend the
covenants if requested.

 

Dmytro Khoroshun: We expect
Metinvest to avoid default by obtaining a waiver or an amendment for its PXF
loan covenants, if necessary, as we have long maintained.

 

Metinvest likely intends to maintain its solid
standing with its creditors, which we infer from the fact that Metinvest did
not default during April-May despite an increase in debt-servicing
payments.

 

We think Metinvest will request and obtain an
amendment to its 3x net leverage covenant limit to avoid default in mid-2020.
Granted, Metinvest’s EBITDA (excluding JVs) recovered to USD 328 mln in 1Q20
from negative USD 16 mln in 4Q19. Nevertheless, because of the slump in steel
prices in March-May, Metinvest’s 2Q20 EBITDA will likely be below the
approximately USD 308 mln required to keep its net leverage ratio under 3x
(assuming USD 2.78 bln of net debt, same as end-March).