S&P raises Metinvest rating to B

 

The issuer credit rating of Ukraine’s largest
steelmaker Metinvest (METINV) was upgraded by S&P to B/Stable from
B-/Positive on Sept. 17. The credit rating agency also assigned a preliminary B
rating to the new notes Metinvest announced on Sept. 17.

 

As a result of the upgrade, Metinvest is now rated by
S&P one notch above Ukraine’s sovereign rating. S&P’s previous action
on Metinvest was its January upgrade of
rating outlook to Positive.

 

S&P expects the amount of Metinvest’s new notes to
be not less than USD 500 mln. The liability management exercise announced Sept.
17 by Metinvest will reduce the holding’s 2023 bond amount to USD 500 mln from
USD 945 mln, smoothening the overall maturity profile and strengthening
liquidity, the agency said.

 

S&P expects Metinvest’s EBITDA of USD 1.5-1.7 bln
per year in 2019 and 2020 in its base case scenario, CapEx of USD 850-900 mln
per year (including USD 450-500 mln maintenance CapEx), and distributions to
shareholders (mainly dividends) of about USD 300 mln per year. The agency does
not expect Metinvest to increase its stake in Pokrovske Coal beyond the current
25% in the next few years.

 

Metinvest’s two other long-term credit ratings are:
from Fitch, BB-/Stable, two notches above Ukraine’s
sovereign, which was raised also on Sept. 17; and from Moody’s, a
B3/Stable grade, one notch above
Ukraine’s sovereign, which was raised from Caa1 on Dec. 27, 2018.

 

Dmytro Khoroshun: The upgrade,
which was expected after the January outlook upgrade, is well deserved, in our
view.

 

One interesting detail is S&P’s estimate of the
amount of the new notes, confidently above USD 500 mln. According to our
estimates, the amount will be USD 480-500 mln if Metinvest, as it
said in the tender offer announcement, will issue the new notes only to cover
all payments related to the deal. Considering that S&P also said that the
new note issuance will strengthen liquidity, we are wondering whether Metinvest
might issue the new notes in an amount larger than covering the deal payments.