Metinvest allowed to consolidate Pokrovske Coal asset companies

The Antimonopoly Committee of Ukraine (AMCU) has
granted permission to Metinvest B.V., the main holding company of Ukraine’s
largest steelmaker Metinvest (METINV), to consolidate control over nine
companies comprising the so-called Pokrovske Coal (PC) assets, the AMCU said in
an Oct. 1 press release.

 

The AMCU said that its main focus was on two companies:
PrJSC Pokrovske Coal, a coking coal miner, and Svyato-Varvarynska Enrichment
Plant LLC. The AMCU took into consideration that coking coal consumers in
Ukraine import up to 75% of this material, and that some coking coal mines in
Ukraine are underutilized, according to the release. To further protect the
consumers, the AMCU forced Metinvest B.V. to take on obligations to sell to
third parties at least 10% of the coking coal concentrate produced by the PC
assets at market prices, the release said.

 

At their Oct. 6 AGM, the shareholders of PrJSC
Pokrovske Coal plan to allow the company to enter a settlement deed that would
involve PrJSC Donetsksteel and its creditors, according to the AGM agenda
available at the Pokrovske Coal website. According to the proposed drafts of
the AGM decision, the settlement deed involves PrJSC Donetsksteel paying USD
500 mln to PrJSC Pokrovske Coal, and PrJSC Pokrovske Coal paying this sum to
the creditors.

 

Recall, PrJSC Pokrovske Coal was a guarantor for several loansto PrJSC Donetsksteel, the total amount of which (including interest accrued
but unpaid) at the end of 2019 was about USD 1.3 bln, according to Concorde
Capital estimates.

 

Recall, Metinvest purchased a 24.99% stake in Pokrovske Coal assets in July
2018, together with what the holding said were its four
co-investors.

 

Dmytro Khoroshun: Metinvest
has an option to acquire by July 2021 the remaining 75% of the PC assets at a
price we estimate at around USD 0.5-0.6 bln, but the holding might want to wait
longer with this acquisition because its leverage is currently close to the 3x
covenant limit.

 

An important question is how much, if any, of the debt
to Donetsksteel creditors Metinvest will add to its balance sheet when it
acquires control over the PC assets. It is not clear whether Metinvest will
consolidate PrJSC Donetsksteel, the company that has the largest debt load
(about USD 1.3 bln) among the PC assets. The AMCU decision did not mention
Donetsksteel, but it is theoretically possible that Metinvest does not need
AMCU’s permission for consolidating control over Donetsksteel because this
company might conduct no business activities for AMCU to regulate.

 

However, even if Metinvest does not consolidate
control over PrJSC Donetsksteel, some of the latter’s debt (up to USD 0.5 bln)
might find its way onto Metinvest’s balance sheet via the balance sheet of
PrJSC Pokrovske Coal. This is because the coal miner was a guarantor for PrJSC
Donetsksteel’s debt and might take on specific obligations by entering into a
settlement deed with Donetsksteel and its creditors.

 

We maintain our neutral view on METINV bonds.