Metinvest faces bump in debt service payments in April-May

Metinvest (METINV), Ukraine’s largest steelmaker, is
scheduled to pay a USD 27.5 mln coupon on its METINV’26 notes on Apr. 23 and a
USD 22.6 mln coupon on its METINV’29 notes on May 17, according to our
analysis.

Metinvest is also to resume principal repayment of its
USD 406 mln PXF facility, about USD 15 mln per month, in April. Recall,
Metinvest last prepaid USD 75 mln against these principal repayments in
October. In its 3Q19 investor presentation, Metinvest said
that in October 2019, it had prepaid PXF principal redemptions until April
2020.

At the end of January, Metinvest had USD 291 mln of cash
on its balance.

Dmytro Khoroshun: We think
Metinvest should be able to continue servicing its debt at least for the next
few quarters.

One source of liquidity for Metinvest should be its
working capital. We calculate that at the end of 2019, Metinvest’s
trade-related net working capital (NWC) stood at USD 1.58 bln, or 15% of
last-12-month (L12M) revenue. For comparison, around the bottom of the previous
cycle, at the end of 2015, Metinvest had USD 353 mln in trade-related NWC,
which amounted to only USD 0.35 bln, or 5% of L12M revenue.

If Metinvest goes through April-May without defaulting
on any of its debt service payments (PXF principal repayments, coupons on its
notes), as we assume it is fully able to, this will signify the holding’s
desire to maintain good standing with its creditors.

Conversely, Metinvest might in theory be considering
putting its debt service payments on hold, possibly due to the price depression on the steel markets in March-April,
and in analogy to what another SCM-controlled company, DTEK Energy, did in late March.
In such a case, a convenient time point to pull the trigger will be right
before the April-May increase in debt service payments.

We maintain our negative view on METINV bonds.