Metinvest affiliate Pokrovske Coal confirms taking on USD 0.5 bln debt

PrJSC Pokrovske Coal took on USD 500 mln of debt as a
result of PrJSC Donetsksteel restructuring its debt, a Pokrovske Coal
representative confirmed to the Interfax-Ukraine news agency on Jan. 19.

The total amount of debt for which Pokrovske Coal was
a guarantor exceeded USD 1.5 bln, but the company was able to negotiate taking
on only a part of that debt, Interfax-Ukraine reported. It also agreed to
extend its payments to Donetsksteel’s creditors for several years.

Recall, at their Jan. 15 EGM Donetsksteel’s
shareholders approved an updated version of a settlement deed
with the company’s creditors that amounts to USD 1.34 bln in total, including
by reimbursing USD 500 mln to Pokrovske Coal, which will pay the creditors in
turn.

Dmytro Khoroshun: This
development was expected and is neutral for Metinvest. If Metinvest
consolidates control over Pokrovske Coal (but not over Donetsksteel) in the
near future, the holding will add USD 0.5 bln to its debt. In addition,
Metinvest will pay USD 0.5-0.6 bln to consolidate control of 75.22% of the
corporate rights to the so-called Pokrovske coal business, which includes
Pokrovske Coal but not necessarily Donetsksteel.

Interfax-Ukraine cited its Pokrovske Coal source as mentioning
the deal with Donetsksteel creditors, which involves a London Court of
International Arbitration case, as having been finalized. However, more
information, including on how Donetsksteel plans to earn money to pay its
creditors, is needed to fully assess the deal’s effect on Metinvest.

We see it likely that Donetsksteel will continue
depriving Pokrovske Coal of a significant share of profits by acting as an intermediary for
enriching the coal mined by Pokrovske Coal. If so, by consolidating control
over Pokrovske Coal, Metinvest will likely not gain any additional free cash
flow at all until all of Donetsksteel’s debts are repaid.

We maintain our neutral view of METINV bonds.