Metinvest improves debt portfolio quality

Metinvest (METINV), Ukraine’s largest steel and iron
ore producer, has repaid USD 68 mln of its PXF facility ahead of schedule,
according to the company’s May 14 investor release.

 

After the repayment, Metinvest owes USD 10 mln under
its PXF. Recall, in March Metinvest prepaid USD 150 mln
of this facility.

 

Metinvest also announced that it agreed to amend the
terms under the USD 480 mln restructured debt facility of the Pokrovske coal
business that was consolidated in March. The
interest rate on the facility was reduced significantly and the final maturity
date was moved to 2026 with an option of voluntary early repayment, the release
said.

 

In its financial statement, PJStC Pokrovske Coal, one
of the two major assets of the Pokrovske coal business, said that that it had
USD 500 mln of non-bank loans on its balance sheet as of end-2020, which had
the final maturity on Dec. 31, 2023 and an interest rate of 10%.

 

Dmytro Khoroshun: It would be
important for Metinvest to affirm explicitly that it does not intend to support
with cash Donetsksteel, an asset that used to be affiliated with the Pokrovske
coal business before the latter was acquired by Metinvest.

 

We continue to see a risk of such support because Donetsksteel
apparently has no sources of cash to repay its recently restructured debt that
might reach USD 1.3 bln.

 

So far, Donetsksteel has been reaping substantial
profits and even more substantial cash flows by purchasing raw coal from the
Pokrovske coal business (now among Metinvest assets), enriching it and selling
the resulting coking coal concentrate (supposedly mostly to Metinvest assets).
For example, in 2020, Donetsksteel’s EBITDA was USD 78 mln and its net
operating cash flow was a substantially larger USD 264 mln. In 2019,
Donetsksteel’s net operating cash flow, USD 216 mln, also exceeded its EBITDA
(USD 144 mln).

 

In any case, the improvement of the terms of the
Pokrovske coal business’ loan is positive for Metinvest.

 

Metinvest apparently decided not to use the spring
2021 window for a liability management exercise, of which early prepayment of its PXF could have been one of the steps.

 

We maintain our neutral view on METINV bonds.