Metinvest to receive USD 118 mln in dividends from JV

Southern Iron Ore, a joint venture of Ukraine’s
largest steel producer Metinvest (METINV), plans to declare UAH 8.43 bln (USD 302
mln) in dividends, according to the agenda of an EGM to be held on March 5. The
amount to be declared is part of its 2019 net profit, the company said in the
agenda published on Feb. 17.

The shareholders attending the EGM are asked to delegate
to the company’s supervisory board the rights to determine the record date and
the time period for the dividend payment.

Other items of the agenda include approving Southern
Iron Ore’s 2019 annual accounts and report.

Dmytro Khoroshun: Metinvest
owns 45.9% of Southern Iron Ore and should receive USD 118 mln after tax (15%)
in dividends.

However, this cash inflow to Metinvest from Southern
Iron Ore might also be associated (take place simultaneously) with a cash
outflow from Metinvest to Southern Iron Ore related to working capital.

Namely, trade accounts payable by Metinvest to its JVs
(including Southern Iron Ore) jumped to USD 1.02 bln at 2020-end from USD 503
mln at 2019-end, according to its 2020 financial statements. Metinvest’s trade
accounts payable specifically to Southern Iron Ore were USD 390 mln at
1H20-end, up from USD 219 mln at 2019-end, according to Metinvest’s September
2020 prospectus.

To summarize, it is possible that Southern Iron Ore
has, for the last year or so, been using its cash to finance its owners,
including Metinvest, via working capital, and will now recall part of this
financing in order to pay dividends.

We maintain our neutral view on METINV bonds.