Akhmetov’s assets freeze to be reviewed by Cyprus court on Feb. 27

The assets of Rinat Akhmetov and of nine other persons
and legal entities, including SCM (System Capital Management) Limited (Cyprus),
which owns 71.24% of Ukraine’s largest steelmaker Metinvest (METINV), were
frozen by the District Court of Nicosia on Dec. 27, the media reported last
week. According to a subsequent report by the Financial Times, SCM appealed the
decision on Jan. 8, and another hearing is scheduled for Feb. 27.

The court issued the freezing order in relation to an
application by Raga Establishment Limited (formerly EPIC Telecom Invest
Limited), which is fighting a legal battle with Akhmetov’s SCM holding.
According to the Financial Times, Raga claims that SCM Financial Overseas, a
part of the SCM group, owes it about USD 760 mln as a yet-unpaid part of the
USD 860 mln purchase of Ukrtelecom (UTLM UK). The court’s decision imposes a
minimum of USD 820.6 mln to remain frozen, with Interfax-Ukraine reporting that
about USD 60.4 mln of this amount is the interest and legal fees that were
awarded to Raga by the London Court of International Arbitrage around the
beginning of December 2017.

Dmytro Khoroshun: We think
that this development slightly weakens Metinvest’s position in the negotiations
with the markets within the liability management move, which is possible during January-February 2018.
Indeed, the markets might argue that Metinvest’s desire to pay the dividends is
rather desperate, because its majority owner, the SCM holding, needs the money
badly – for example, to pay its debt to Raga.

In other words, we think that it would be difficult
for Metinvest to use this asset freeze to its advantage in negotiations with
the markets – for example, by implying a threat of forthcoming radical moves
such as change of control or default. Rather, we think that this legal dispute
might be used by Metinvest as a reason for why the holding needs to pay
dividends now.

We are keeping our neutral view on METINV
Eurobonds.