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Metinvest expects cash flow to redeem 2015 bond, considers 2018 payment

Metinvest expects cash flow to redeem 2015 bond, considers 2018 payment

7 August 2014

Metinvest (METINV), Ukraine’s largest iron ore miner and steel producer, will have the capacity to repay its 2015 Eurobond, either by relying on its own operating cash flow or refinancing it should debt market conditions be favorable, the holding’s CEO Yuriy Ryzhenkov told an Aug. 6 press conference. At the same time, he disclosed that the holding is approaching investors and studying the possibility of shifting repayment of part of its 2015 Eurobond (USD 500 mln outstanding) to 2018 in any form, including issuing a new bond. He called the process “liability management,” not restructuring.

 

The largest operating issue currently is the disrupted throughput capacity of railways in Donbas, which is creating hurdles for the delivery of raw materialsand finished goods to and from its enterprises, according to Metinvest management. However, as of now, it doesn’t expect any crucial deviation of production volumes from the company’s annual business plan. Metinvest is studying alternative options to delivering raw materials via sea routes instead of railway.

Roman Topolyuk: We estimate that Metinvest indeed has the capacity to repay the bulk of its debt in 2014-15, totaling USD 2.2 bln, from its own cash flow: its 2014 EBITDA will be supported by 48% hryvnia devaluation, even though falling steel prices and production volumes sliced into profitability. However, conditions may get worse and Metinvest may rely on its refinancing abilities to cover possible gaps.

 

Secondly, certain important production assets of Metinvest – coking coal miner Krasnodonvuhillia, steelmaker Yenakiyeve Steel and Khartsyzk Pipe – are located on territory controlled by separatists. Should the armed fighting intensify, the security of those assets comes under significant risk. The group’s largest coke producer, Avdiyivka Coke, is also close to the war zone. Possible damage to the production process could be used by Metinvest as an excuse to initiate the restructuring of its 2015 Eurobond. We estimate that the current yield of its 2015 Eurobond justifies the inherent risk.

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