Ferrexpo denies stake sale or large-scale restructuring

In a comment to Concorde Capital, Ukraine’s largest iron ore pellet exporter Ferrexpo (FXPO LN, FXPOLN) denied information, published Sept. 20 in the British newspaper Sunday Times, that the company is considering hiring a financial advisor in order to conduct a wider restructuring that includes cost-cutting, reducing dividends or the sale of a stake to a strategic investor. Ferrexpo is holding talks with banks on the maturity extension of its two PXF facilities by 12 months: the first one of USD 420 mln with USD 175 mln outstanding due in July 2016, and the second one of USD 350 mln, the amortization of which will begin in 2016 and the maturity of which is scheduled for August 2018. The talks started after Ferrexpo finalized in July the maturity extension of its 2016 Eurobonds to 2019 in July 2015.

The company has to repay USD 315 mln to banks and providers of ECA financing by the end of 2016, and its current cash position is around USD 106 mln, we estimate, after USD 174 mln is frozen in Finance & Credit Bank, which was declared insolvent by Ukraine’s central bank on Sept. 17.

Roman Topolyuk: The British press has shown itself to be far from reality, as it has been on numerous occasions regarding Ferrexpo.

What’s true, and what hasn’t changed since the insolvency of F&C bank was declared, is that Ferrexpo is continuing negotiations with banks on maturity extensions. We believe that the company has strong chances to get concessions from banks in new terms of debt amortization, though this process can take some time, about a month or two.

With USD 200-240 mln of annual EBITDA to be generated at current iron ore pellet prices, and CapEx minimized to just maintenance expenditures of USD 52 mln or lower, the company has the potential to generate free cash flow of USD 100-140 mln annually. Unless iron ore prices further deteriorate significantly, we don’t think the company would need its debt principal reduced, though temporary cuts in dividends could be possible.