Metinvest conference call confirms Eurobond refinancing risk

Ukraine’s leading steel holding Metinvest (METINV) is
considering a return to debt markets already in early 2018, CEO Yuriy Ryzhenkov
said in a conference call on Oct. 11. In particular, the holding will consider
refinancing of existing debt (Eurobonds and PXF facility) aimed not only at
lowering the cost of debt, but also at aligning the debt repayment schedule
with its capital investment plans for the next 5-10 years. Refinancing is
unlikely in 2017, but is possible from the beginning of 2018, Ryzhenkov
commented.

Ryzhenkov also confirmed that Metinvest is
anticipating receiving large dividends from Southern Iron Ore Plant (we
estimate the holding is due to receive UAH 7.4 bln, or  about USD 275
mln). These proceeds will increase the holding’s cash balance and will be
accounted for in distributions to the debtholders via the cash sweep mechanism
if it’s applicable by that time. Southern Iron Ore Plant, in which Metinvest
owns 45.9%, declared UAH 16.2 bln (around USD 600 mln) in dividends on Sept. 5,
payable by Mar. 5, 2018.

Regarding the capital investment plans, the holding
has initiated a review of its Technological Strategy 2030. The planned amounts
of CapEx are USD 500 mln for 2017 and USD 700 mln for 2018.

Ryzhenkov also commented on the EU’s recent decision
to impose anti-dumping duties on certain Ukraine-produced hot-rolled products.
Before these trade sanctions, the holding planned to deliver to EU 0.86 mmt of
hot-rolled products in 2017, of which three-quarters has already been sold. To
mitigate the effect of these sanctions, the holding plans to diversify to other
regions, switch to selling other products to the EU market, and will try to
appeal against the sanctions during annual reviews. Furthermore, at the current
prices, the holding is considering continuing to sell the hot-rolled products
to key customers in the EU, even under the duty regime.

Dmytro Khoroshun: Metinvest’s
business has been performing strongly, relative to the several recent years, as
evidenced by its strong financial performance and return to long-term planning.
We see it’s possible that the holding will return to the debt market in 2018 in
order to make the most of this current period of strength.