Metinvest 3Q15 EBITDA falls 31% qoq, almost zero in October

Ukraine’s largest steelmaker and iron ore miner Metinvest (METINV) reported EBITDA of USD 813 mln in 9M15 (-63% yoy), according to its trading update published on Dec. 7. The decline was the result of a drastic deterioration in selling prices of all its products, as well as 17% yoy and 3% yoy lower volume sales in its metallurgical and mining segments respectively. A 32% year-to-date hryvnia depreciation softened the hit against Metinvest’s earnings that was inflicted by a plunge in global steel and iron ore product prices. Metinvest estimated a positive impact of the devaluation at USD 886 mln on its EBITDA in 9M15, which exceeds its actual reported EBITDA. Regarding the company’s numbers, savings on lower prices for natural gas of USD 72 mln were more than offset by hiked electricity rates, causing additional expenses of USD 127 mln during the period.

In 3Q15, Metinvest’s EBITDA declined 31% qoq to 193 mln.

Disclosing its financial performance after the report’s period of 9M15, Metinvest reported its October EBITDA was almost at the breakeven level of USD 2 mln, after USD 27 mln in September. 

The holding’s CapEx fell 53% yoy to USD 191 mln in 9M15, which implies investments of USD 74 mln in 3Q15 (down 6% qoq). Its key investment projects included the overhaul of blast furnace No. 3 at Azovstal, the reconstruction of the sinter plant at Ilyich Steel, the construction of a PCI at Yenakiyeve Steel, as well as the construction of a deep-quarry crusher & conveyor system at both the Northern and Inhulets ore enrichment plants.

Metivest reported it finally signed a standstill agreement with banks on Dec.1 that will extend until Jan. 31, 2016. At the same time, discussions are ongoing on a restructuring proposal that the company submitted to both the banks and bondholders at the end of November, the company said.

The holding’s cash position as of end-September stood at USD 198 mln, which decreased to USD 150 mln as of end-October. Total debt-to-EBITDA as of end-September worsened to 2.3x vs. 1.9x as of June 2015.

Roman Topolyuk: The crucial number in the trading update is the company’s near-zero EBITDA for October, which summarizes its current financial performance and offers a hint on what EBITDA could be in 4Q15. Slab prices have decreased 12% since October to USD 225/t, billet prices have decreased 4% during the period to USD 267/t (FOB, Black Sea port), and iron ore fines prices have fallen by a third to USD 39/t in China (CFR basis). Despite certain margins (up to 30-40/t) still being possible in selling long products (both semis and finished long steel generated 13% of revenue in 9M15), Metinvest will likely report negative consolidated EBITDA in 4Q15. Without a rebound in steel prices (which we think is impossible during the next several quarters) or substantial hryvnia devaluation, Metinvest won’t be able to return to positive EBITDA.

In the current market circumstances, Metinvest has very limited, if any, ability to pay interest. So capitalizing interest payments will be a substantial focus of its negotiations with creditors, we believe. We reiterate our negative view on Metinvest’s Eurobonds.