Fitch raises Metinvest rating to BB-

The long-term issuer default rating of Ukraine’s
largest steelmaker Metinvest (METINV) was upgraded by Fitch to BB-/Stable from
B+/Stable on Sept. 17. The agency cited Metinvest’s BB category business and
financial profiles, together with its upgrade to B from B- of
Ukraine’s rating on Sept. 6, as the factors behind its action.

Fitch also assigned a BB-(exp) rating to the new notes
Metinvest might issue in relation to the tender offer for METINV’23 notes
launched on Sept. 17.

Fitch’s previous action on Metinvest was its April upgrade to
B+/Stable from B/Positive.

Fitch expects Metinvest to generate EBITDA of around
USD 1.5 bln per year in 2019-2022. Annual FCF before dividends will be over USD
300 mln for the next three years, down from the agency’s April expectations of
over USD 500 mln. FCF after dividends will be small but positive during the
next few years, Fitch anticipates.

The agency also warned that Metinvest acting as a
working capital provider to its JVs and associates could unduly impact the
holding’s FCF generation in a market downcycle.

Fitch’s rating of Metinvest is now back to two notches
above Ukraine’s sovereign rating. Metinvest’s two other long-term credit
ratings: are from S&P, B/Stable, one notch above Ukraine’s sovereign,
upgraded also on Sept. 17; and from Moody’s, a B3/Stable
grade, also one notch above Ukraine’s
sovereign, which was raised from Caa1 on Dec. 27, 2018.

Dmytro Khoroshun: The upgrade, which we expected, is justified
by Metinvest’s business remaining too strong for the B rating category, even
after the recent downturn in steel prices.