Fitch revises Metinvest rating outlook to Stable

Fitch Ratings announced on April 12 it has revised the
outlook on its issuer default ratings (IDRs) of Ukraine’s largest steelmaker
Metinvest (METINV) to Stable from Negative, while also affirming its IDRs at
BB-.

 

The decision reflects Metinvest’s strong cash flow
generation linked to supportive steel and iron ore markets, the rating agency
said, adding that some of this cash flow will be used for earnings-accretive
growth, including CapEx and taking control of Pokrovske coal business.

 

Fitch expects steel prices to support exceptional
Metinvest earnings in 1H21 before gradually moderating in 2H21, and forecasts
Metinvest’s EBITDA to peak at USD 3.3 bln in 2021, reverting to a mid-cycle
level of USD 2.2 bln by 2023.

 

Metinvest’s budgeted CapEx for 2021-2023 amounts to
USD 0.9-1.0 bln per year, the report said. Fitch sees the holding’s improved
earnings resulting in higher dividend payments and expects Metinvest to retain
about USD 200 mln in free cash flow after dividends in 2022-2023 (USD 500 mln
in 2021 before acquisitions).

 

The retention of free cash flow will allow Metinvest
to reduce its gross debt to around USD 2.9 bln, translating into FFO gross
leverage of 1.5-1.6x at mid-cycle earnings, providing for very comfortable
headroom at the BB- rating, the report said.

 

Fitch kept Metinvest’s rating two notches above
Ukraine’s sovereign B rating in part because the agency expects the company’s
hard-currency external debt service cover ratio to be at or above its 1.5x
threshold for the next three to four years. Fitch defines this ratio as 50% of
export EBITDA plus some EBITDA generated abroad and offshore liquidity, divided
by the hard-currency principal repayments (excluding trade finance) and
interest payments.

 

Fitch’s previous action on Metinvest was a June 18, 2020 revision of its
outlook to Negative from Stable. Metinvest’s two other long-term credit ratings
are: from Moody’s, B2/Stable, one notch
above Ukraine’s sovereign; and from S&P, B/Stable,
in line with Ukraine’s sovereign.

 

Dmytro Khoroshun: Fitch’s
outlook revision is justified and might facilitate Metinvest’s bond issuance
the holding was reportedly planning.

 

We maintain our neutral view on METINV bonds.