Metinvest negotiating seven-year, EUR 62 mln loan

Ukraine’s largest steelmaker Metinvest (METINV) is in
the final stage of negotiations with the Black Sea Trade and Development Bank
(BSTDB) regarding a seven-year credit facility of EUR 62 mln, according to a
July 6 press release.

The BSTDB board of directors has approved the loan,
Metinvest said, adding that the holding plans to use the funds to implement its
investment program and replenish its working capital.

BSTDB is an international financial institution
established by Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece,
Moldova, Romania, Russia, Turkey, and Ukraine, Metinvest’s release said. It supports
economic development and regional cooperation by providing loans, credit lines,
equity and guarantees for projects and trade financing in the public and
private sectors in its member countries, according to the release.

Dmytro Khoroshun: Taking on
this loan (which does not seem to be a refinancing indebtedness) will likely
require Metinvest to test its net leverage ratio against the 3x limit. To
satisfy this requirement, Metinvest will have to have net debt of less than USD
2.87 bln (before the new loan is accounted for), based on our calculations
using the last-12-month (L12M) EBITDA (excluding JVs) figure of USD 980 mln, as
of Mar. 31. Unless Metinvest’s net debt has risen since its end-April USD 2.803 bln value, the holding
should be able to pass the covenant test and attract the loan.

Once Metinvest discloses its 1H20 financials (the
deadline is end-October), it will have to use its L12M EBITDA (excluding JVs)
as of June 30 for the covenant test. We estimate that this value will be less
than USD 920 mln, limiting the net debt before the new indebtedness to below
USD 2.69 bln. Such a low net debt might be difficult for the holding to
achieve. However, in the semi-annual financials, large one-off adjustments for
EBITDA are possible, which might allow Metinvest to pass the covenant test and
to attract the loan from BSTDB.

We maintain our negative view on METINV bonds.