Metinvest announces tender for 2026 notes

Ukraine’s largest steelmaker Metinvest (METINV) on Aug.
9 launched a tender to purchase some of its 2026 notes outstanding, according
to its regulatory announcement.

 

Metinvest is inviting the holders of METINV’26 notes
to make their offers to the company to sell these notes. Metinvest’s reason for
this deal is to proactively manage its debt maturity profile, as well as to
deleverage and reduce the cost of debt, the announcement stated.

 

Metinvest intends to purchase up to USD 250 mln in
principal amount of the notes (the maximum invitation amount), but may purchase
more or less than this amount, at its sole and absolute discretion, or not to
purchase any notes.

 

The tender will take place via a modified Dutch
auction, with Metinvest’s minimum purchase price amounting to 114% of par. A
noteholder has an option to submit a competitive offer (specifying its offer
price and the volume it is willing to sell) or a non-competitive offer
(specifying only the volume). Metinvest will determine the purchase price, and
accept firstly all non-competitive offers, secondly competitive offers with
offer prices lower than the purchase price, and thirdly competitive offers with
offer price equal to the purchase price. Pro rata allocations will be applied
to the volumes at the first and the third acceptance steps. Metinvest will pay
the noteholders the interest accrued on their notes tendered in addition to the
purchase price.

 

The amount outstanding of METINV’26 notes is currently
USD 648 mln. On Aug. 6, these notes were quoted at 113.3/114.2 percent of par,
according to Bloomberg.

 

The indicative expiration time for the invitation is
4pm London time on Aug. 18, with the company having options to extend it or
terminate it early, according to Metinvest’s announcement. The indicative
results announcement date for the tender is expected to be Aug. 19. The
indicative settlement date is on or about Aug. 20.

 

Recall, in June Metinvest purchased USD 116 mln of its
METINV’23 notes via a similar tender. The maximum invitation amount was USD 150
mln, and the purchase price was 107.3% of par (plus accrued interest), the same
as the minimum purchase price announced at the tender’s launch.

 

Dmytro Khoroshun: Investors
might decide to unload their METINV’26 bonds at this tender for several
reasons.

 

First, there are risks that Ukraine’s missteps will
delay the next IMF tranche beyond the earliest possible date
of late November. Second, during the next several months the high-yield bond
markets might experience repricing and capital outflow if the US Federal
Reserve moves toward eventual tightening of its monetary policy. Third, the
iron ore prices in China have plunged since mid-July, and we expect the steel
prices to eventually drop further from their recent maximums.

 

The 114% of par might be a reasonable exit price point
for METINV’26 notes for investors betting on such outcomes, even though it is
below the June maximum of 114.7% of par.

 

Nevertheless, should Ukraine reach an agreement with
the IMF against a backdrop of stable high iron ore and steel prices as well as
easy monetary policy in the US and worldwide, it is possible that METINV’26
prices will rise above 114% of par in the next few quarters.

 

Metinvest is unlikely to set the tender’s purchase
price higher than the announced 114% of par minimum, and the notes should
maintain their liquidity after the tender, we think.

 

Regarding the purchase price, the results of the
METINV’23 tender in June suggest Metinvest as the buyer might prefer lower
prices to higher volumes at such tenders. If the market price of METINV’26
notes rises substantially before Aug. 18, Metinvest might set its purchase
price higher than the announced minimum price, but we see no obvious Ukraine-
or Metinvest-specific possible catalysts for such a move.

 

Regarding the liquidity, the notes might be excluded
from two JPMorgan indices which they are currently members of as a result of
this tender, but will likely remain members of two other, broader indices.

 

Namely, the METINV’26 notes will likely be excluded
from JPMorgan CEMBI and CEMBI Diversified indices (which have a minimum
requirement of USD 500 mln of principal amount outstanding) if Metinvest
purchases more than USD 148 mln in principal amount of these notes at the
announced tender, which we think is possible.

 

Nevertheless, the notes should remain members of
JPMorgan CEMBI Broad and CEMBI Broad Diversified indices (which require USD 300
mln minimum of principal) unless Metinvest purchases more than USD 348 mln in
principal amount, which we think is unlikely judging from the announced USD 250
mln of maximum invitation amount and from how the METINV’23 tender turned out
in June.

 

We maintain our neutral view on METINV bonds.