Metinvest gets B- rating with a stable outlook by S&P

Ukraine’s leading steel holding Metinvest (METINV)
reported on Jan. 12 that it was assigned a B- long-term corporate credit rating
by S&P with a Stable outlook.

“The cash sweep mechanism and the dividend
restrictions under the Eurobond and PXF documentation provide comfort and
visibility on financial policy in terms of expectations of deleveraging and
lack of dividend payments,” S&P reported.

Acknowledging the recent freeze of the assets
of Metinvest’s ultimate beneficial owner, Rinat Akhmetov, S&P underlined,
“Metinvest does not expect any impact on its business from these proceedings.
The current rating on Metinvest assumes that SCM Group will maintain its
current shareholding in the company.”

Metinvest’s two other long-term credit ratings are
from Moody’s at Caa1/Positive (raised from Caa2/Stable on Aug. 29, 2017) and
from Fitch at B/Stable (raised from RD on Apr. 7, 2017). Both Fitch and Moody’s
rate Metinvest one notch above Ukraine’s sovereign issuer levels. Furthermore,
Moody’s regularly notes in its reports that Metinvest’s rating is too strong
even for the one-notch-above-sovereign level. In contrast, S&P’s current
rating for Ukraine is the same as the one it assigned Metinvest, B-/Stable, and
the rating agency noted in its report that Metinvest’s rating is not, in fact,
constrained by the sovereign issuer level.

This is the first time S&P ever rated Metinvest.

Dmytro Khoroshun: The fact
that Metinvest has gone through S&P’s credit rating initiation means that
the holding cares a lot about its standing with the credit markets. This is in
line with the recent rumors that
Metinvest is considering issuing a new Eurobond and possibly redeeming the
notes currently outstanding, possibly as soon as January-February.

Because Metinvest’s rationale for visiting the markets
is reportedly to relax the restrictions on dividend payments,
we think that S&P’s “comfort and visibility on financial policy” will need
to be revisited if Metinvest indeed conducts a restructuring/refinancing.

We are keeping our neutral view on METINV Eurobonds.