Fitch upgrades Ferrexpo bonds to B- with stable outlook
28 February 2017
Fitch upgraded the rating of Ukraine’s largest iron ore pellet exporter Ferrexpo (FXPOLN, FXPO LN) to B- from CCC with a stable outlook, the ratings agency announced on Feb. 27. The upgrade reflected Ferrexpo’s improved liquidity and strong free cash flow generation due to higher-than-expected iron ore prices in 2016 and high pellet premiums. Fitch expects Ferrexpo to be able to cover USD 528 mln of debt maturing over 2017 and 2018 from a USD 126 mln cash balance and a USD 463 mln free cash flow generation.
Fitch assumes the average global iron ore price to be USD 60/ton in 2017, then declining to USD 45/ton in 2018 and 2019. Pellet premium prices will hover around USD 40/ton in 2017, then declining to USD 30/ton in 2018 and 2019. Annual iron ore pellet production volume will remain stable at 11.6 mmt throughout 2017-2019. CapEx is estimated by Fitch at USD 50 mln in 2017 and USD 65 mln in 2018-2019.
Igor Zholonkivskyi: Ferrexpo’s B- rating now matches Ukraine’s sovereign rating and falls two notches lower than Kernel (KER PW) Eurobonds. The ratings upgrade is unlikely to have any material effect on FXPOLN Eurobonds, which now trade at 102%-103% of par, supported by the recent rally in global iron ore prices.
We remain cautious of the risks of the possible reversal of global iron ore prices in 2017, and we think the potential downside to FXPOLN Eurobonds will be greater than the potential upside.
