Metinvest launches tender for its 2023 bonds
18 September 2019
Metinvest (METINV), Ukraine’s largest steelmaker,
offered the holders of its METINV’23 notes to purchase them for a total cash
consideration of 106 percent of nominal plus accrued interest, according to the
tender offer announcement published by Metinvest on Sept. 17.
The holding plans to purchase up to USD 440 mln out of
the currently outstanding USD 944.5 mln of METINV’23 notes, with pro rata
acceptance if the noteholders tender more than USD 440 mln.
In order to finance the purchase, Metinvest plans to
issue new USD-denominated notes with maturity of eight to ten years, according
to a Sept. 17 Interfax-Ukraine report, which cited anonymous sources adding
that Metinvest will also consider issuing a EUR-denominated note with maturity
of five to seven years.
The new notes will be issued in the amount of all
payments related to the deal. In detail, these payments will include 103
percent of nominal in note purchase price, 3 percent of nominal in early tender
payment, interest accrued, as well as all transaction costs and expenses
related to both the tender and the issuance of the new notes.
The total consideration of 106 percent will be paid to
those who respond to the offer by early tender deadline, which is 5pm New York
City time on Sept. 30. The early tender results will be announced on Oct. 1,
and pricing of the new notes is expected as early as possible afterwards. Metinvest’s
offer will expire on 11.59pm New York City time on Oct. 15. Offer results will
be announced on Oct. 16, with tender settlement planned for Oct. 17.
Metinvest intends to give priority in allocation of
the new notes to noteholders who tender their METINV’23 notes for purchase.
The purpose of the Offer is to proactively manage the
redemption of the holding’s debt, extend its debt maturity profile and lower
refinancing risks, Metinvest said in the announcement.
Metinvest gives no assurance that the deal will be
completed, the announcement said. The deal’s completion is contingent upon
Metinvest placing its new notes on satisfactory terms, as determined in
Metinvest’s sole discretion.
As we discuss separately, on Sept. 17 Fitch
upgraded Metinvest’s long-term issuer default rating to BB-/Stablefrom B+/Stable and assigned a BB-(exp) rating to the holding’s upcoming notes
issue. Also, the same day S&P upgraded Metinvest’s issuer credit rating to B/Stablefrom B-/Positive and assigned a preliminary B rating to the upcoming new notes.
Dmytro Khoroshun: If successful,
a deal with a purchase of the maximum USD 440 mln of METINV’23 notes financed
by the new notes, with eight to ten year maturity mentioned in the media, means
that Metinvest will have four notes outstanding: USD 115 mln maturing in 2021, USD
504 mln – in 2023, USD 648 mln – in 2026, and the new issue of USD 480-500 mln
– in 2027-2029. Such a maturity profile is more smooth than the current one,
with USD 945 mln maturing in 2023. Notably, S&P expects the amount of the
new issue to be at least USD 500 mln.
The advantage of doing the deal now is that yields are
relatively low. We calculate that the yield for METINV’23 this morning, 6.19%,
was 428 bps lower than its one-year maximum, and lower than this note’s 7.75%
coupon rate. By refinancing at a lower rate now, when the iron ore market is
still favorable, Metinvest will reduce its future risks.
However, we warn investors that scenarios exist in
which Metinvest might consider stepping away from the deal. Namely, the timing
of the pricing date for Metinvest’s new notes (early October) – between today’s
(Sept. 18) Federal Reserve FOMC meeting and the release of the minutes for this
meeting (Oct. 9) – might coincide with a volatile period for USD rates. In such
a negative scenario, Metinvest will perhaps consider a EUR-denominated issue,
but it will face overpaying a lot if it pursues a USD-denominated issue. And if
Metinvest cancels the deal, those holding METINV’23 note – especially the
speculators – might get burned.
We maintain our bullish view on METINV bonds.
