Metinvest capitalizes USD 6.3 mln of interest on bonds

Ukraine’s largest steelmaker Metinvest (METINV) reported on March 23 that it capitalized USD 6.3 mln of accrued, but unpaid interest on its three bonds – maturing in 2016, 2017 and 2018 – for the period between February and March 2015. As a result of the capitalization, total outstanding bonds grew 0.5% during the month to USD 1,161 mln. Metinvest reported on March 18 it will pay USD 2.7 mln in coupons, which is 30% of accrued interest for the period.

The holding concluded it has nothing to distribute as additional interest payments in March. Possible additional interest payment is defined as the difference between the unrestricted cash balance and USD 180 mln.

Roman Topolyuk: Metinvest is duly servicing partial interest payments on its notes, as was agreed upon in a standstill with bondholders. The company will have to make two additional monthly interest payments totaling USD 6.6 mln and capitalize USD 15.4 mln by May 27, 2016, if the restructuring deal isn’t signed with creditors earlier, before this deadline. Its total Eurobonds will increase to USD 1,176 mln by the end of May following capitalization.

We assume that banking lenders, which hold USD 1.1 bln of Metinvest’s debt as of end-2015, are also receiving the 30% portion of accrued interest pro rata, while the rest is capitalized. This would boost the company’s total debt to around USD 3,052 mln by end-May 2016, compared to USD 2,950 mln as of end-2015.

The recent rebound in steel and iron ore prices has significantly enhanced the company’s earnings power and its outlook. This strengthens the case for a successful restructuring to occur. We reiterate our bullish view on Metinvest bonds at the current price of 44-45 cents per dollar.