Metinvest considers bidding for Dniprovskyy Steel assets

Ukraine’s largest steel producer Metinvest (METINV)
might participate in a tender for the PP&E assets of Dniprovskyy Steel, a
Ukrainian steel plant, according to Metinvest’s Feb. 11 comments to Interfax-Ukraine.

 

The news agency reported on the same day that the
Antimonopoly Committee of Ukraine (AMCU) on Feb. 10 started its consideration
of allowing Metinvest to acquire Dniprovskyy Steel PP&E assets.

 

Metinvest has not decided whether it will participate
in a tender for Dniprovskyy Steel PP&E assets, according to the holding’s
response to Interfax-Ukraine in which Metinvest mentioned the poor technical
conditions of Dniprovskyy Steel assets as a factor preventing the holding from
bidding for them.

 

On Jan. 28, the AMCU issued permission to Optimal
Trade LLC, a Ukrainian commodity trader, to acquire Dniprovskyy Steel PP&E
assets.

 

Dniprovskyy Steel entered receivership in October
2020, with creditor claims amounting to UAH 130 bln (USD 4.7 bln), including
UAH 20.9 bln (USD 751 mln) by Optimal Trade LLC and UAH 20.7 bln (USD 744 mln)
by Metinvest Holding LLC, according to Interfax-Ukraine.

 

Recall, in April 2019, Dniprovskyy Steel sold its three blast furnaces
(with the total annual capacity of about 3 mmt) to Dniprovskyy Coke, which
became a Metinvest subsidiary in March 2020. Dniprovskyy Steel PP&E assets
include two oxygen converters with the annual capacity of 2.4 mmt each.

 

In 2020, Dniprovskyy Steel produced 2.56 mmt of crude
steel (15% more yoy) and 2.52 mmt of steel products (+16% yoy), including 1.87
mmt of square billets (+19%), 309 kt of wire rod (-6%) and 197 kt of rebar
(+58%), according to Metal Expert, an industry consultancy.

 

In 2019, Dniprovskyy Steel reported revenue of USD 1.0
bln (-13% yoy), gross loss of USD 131 mln (8.7x yoy), and unadjusted EBITDA of
negative USD 541 mln (vs. negative USD 1.0 bln in 2018).

 

Dmytro Khoroshun: We
tentatively consider it unlikely that Metinvest acquires Dniprovskyy Steel’s
assets even if it decides to participate in a tender for their sale.

 

Metinvest has business ties with Dniprovskyy Steel: it
supplies iron ore and coke for production of hot iron used by the plant and
resells the plant’s steel products. However, these ties might be preserved even
if Dniprovskyy Steel’s assets are eventually acquired by Optimal Trade, because
some media reported that Optimal Trade’s owner used to work at Metinvest and at
other assets of Metinvest’s majority shareholder, the SCM group.

 

It is likely that Metinvest’s short-term M&A focus
will be on increasing its stake in Pokrovske Coal assets
to 100% from the current 24.8%, which might require a payment of USD 0.5-0.6
bln.

 

We maintain our neutral view on METINV bonds.