Metinvest offers creditors to extend standstill to May 2016

Ukraine’s largest steelmaker and iron ore miner Metinvest (METINV) issued a practice statement letter to its bondholders on Dec. 24, informing them it intends to introduce a scheme moratorium on debt repayment. The company intends to apply to the Royal Court of Justice for permission to convene the scheme meeting. The hearing in the court is currently scheduled for Jan. 13, 2016.

Once the court gives permission to conduct the scheme meeting, bondholders will be offered to agree to a number of new conditions on their Eurobonds. Firstly, bondholders would have to agree not to accelerate the repayment of debt by May 27, 2016. Secondly, the company will pay only 30% of accrued interest to bondholders and banks by May 27, 2016. If unrestricted cash on the balance sheet exceeds USD 180 mln, Metinvest would pay an additional pro rata portion of interest to its lenders. The accrued and unpaid interest would be capitalized.

Metinvest additionally disclosed that it owes USD 1,089 mln to banks and USD 1,125 mln to bondholders. The company requested additional time and relief on interest payments to negotiate the conditions of its total debt restructuring. No exact details of the restructuring have been specified, though Metinvest stated it had sent to its creditors a proposal to convert all outstanding notes into one class issuance, consisting of two series notes with extended maturity profiles, as well as convert all PXF facilities into one single facility, consisting of two tranches with extended maturity profiles.

Roman Topolyuk: Given the deteriorating market conditions, and the protracted talks with banks to sign at a standstill, our expectations that Metinvest will not finalize the restructuring by Jan. 31, 2016, as stipulated by the earlier standstill agreement with creditors, proved to be correct. The company and its lenders will need to have additional time to negotiate. Another point is that the company is not earning enough to cover its interest payments, and needs a concession from creditors.

As the cases with other Ukrainian corporate borrowers – like DTEK and Avangardco – demonstrate, an appeal to the courts increases the probability of a restructuring offer being approved, and Metinvest has demonstrated its clear intention to use this instrument.

As steel and iron ore market conditions are adverse and we don’t expect any significant turnaround in 2016, we reiterate our negative view on Metinvest’s bonds.