Interpipe to issue USD 300 mln Eurobond rated B by S&P and Fitch

Ukraine’s largest pipe and railway wheel producer
Interpipe (INTHOL) intends to issue USD 300 mln of new 5-year notes according
to an April 26 report by Bloomberg.

 

The new senior unsecured guaranteed notes will not be
callable for two years, according to Bloomberg, which said investor calls were
to commence on April 26.

 

Standard & Poor’s rating agency assigned its B
issue rating to the proposed notes on April 26 and said that Interpipe will use
about half of the proceeds to make a one-off dividend payments. The other half
will be used to strengthen Interpipe’s liquidity and finance upcoming
investments, according to S&P. Interpipe’s EBITDA will amount to USD
170-210 mln in 2021, S&P forecasts.

 

Fitch Ratings on April 26 assigned an expected B(exp)
senior unsecured rating to Interpipe’s proposed notes and affirmed the
company’s long-term issuer default rating at B with Stable outlook. The new
notes will benefit from guarantees from Interpipe’s subsidiaries representing
at least 80% of the group’s consolidated EBITDA, Fitch said. The draft
documentation for the notes contains an incurrence net debt-to-EBITDA covenant
of 2.0x and restricted payments clauses that cap shareholder distributions, according
to Fitch.

 

Fitch expects Interpipe’s railway product sales
volumes to moderate to 150-160 kt per year from 2021 (2020: 192.5 kt),
including non-CIS shipments of 90-100 kt (2020: 77 kt), with the medium-term
annual EBITDA of this segment estimated at USD 50-60 mln (2020: 158 mln).

 

Interpipe’s capex initiatives will drive a recovery in
volumes and prices in its pipe segment, allowing for this segment’s EBITDA
approaching USD 80-90 mln per year (2020: USD 21 mln), exceeding pre-pandemic
levels of USD 35-50 mln, according to Fitch. Pipe sales volumes will recover
towards 675 kt by 2024 (2020: 470 kt).

 

Ficth assumes that Interpipe’s total annual EBITDA
will amount to USD 190 mln in 2021 and USD 170-180 mln post-2021 (2020: USD 273
mln), and that the company’s CapEx will peak at USD 80-90 mln in 2021-2022
(2020: USD 44 mln).

 

Interpipe’s shareholder distributions will peak at USD
230 mln in 2021 and will moderate by 2023-2024 to levels that are commensurate
with neutral post-dividend free cash flow, according to Fitch.

 

Performance-sharing fees will commence from 2022, will
last until 2024, and will amount to USD 25-27 mln per year, Fitch said.

 

Dmytro Khoroshun: The
conservative 2x leverage covenant reported by Fitch might allow Interpipe to achieve
a spread over Ukraine’s sovereign at the lower end of our 150-225 bps expected
range for its new notes.

 

As we expected, Interpipe will not settle its
outstanding performance securities with the proceeds from the new notes, and
will instead direct about USD 150 mln to dividend payments, according to
S&P.

 

Interpipe had already paid USD 40 mln in dividends in
March 2021, according to its 2020 financials released on April 26. Because Fitch
expects the total shareholder distributions to possibly reach USD 230 mln in
2021, we see a possibility of Interpipe paying another USD 40 mln in dividends
later in 2021 from its own cash flows.