Ferrexpo reaffirms its focus on deleveraging

Ukraine’s largest iron ore pellet exporter Ferrexpo (FXPO LN, FXPOLN) will focus on debt repayment and control over production costs after cutting expansion CapEx due to the weak iron ore market, Ferrexpo Poltava Mine CEO Viktor Lotous told journalists on July 13, as reported by Interfax-Ukraine. The 2016 CapEx maintenance budget is around USD 50 mln, Lotous said.

The company’s monthly electricity bill for July will have increased by UAH 22 mln (USD 0.9 mln), or about 10%, as a result of the government’s rate hikes for industrial consumers, which will impact total production costs, Lotous said.

Commenting on the global iron ore market, the top manager said that the actual market in 1H16 was somewhat more favorable compared to what had been expected early this year. He said he sees 2017 not better and not worse than 2016, in terms of market supply and demand.

Roman Topolyuk: The company’s declared focus on debt repayment falls in line with what it pledged to its investors it would do after its main investments (in the Yeristovo Mine launch and product quality upgrade) were finalized. Such an approach is friendly to creditors. The main question now is whether Ferrexpo will be able to repay its loans on its own or will need a restructuring. We argue that if global iron ore prices stay at their current level above USD 50/t (the price was USD 59/t, as of July 13, and USD 52/t on average since the beginning of the year), Ferrexpo might not need a restructuring of its USD 350 mln banking debt facility (of which USD 44 mln are due in November 2016). Our view on Ferrexpo’s Eurobonds is neutral.