Metinvest sees leverage remaining below 3x in coming months

Metinvest (METINV), Ukraine’s largest steelmaker, does
not currently see a need to modify its 3x net debt-to-EBITDA covenant, according
to CEO Yuriy Ryzhenkov, who spoke on the holding’s 2019 results in a call with
investors on Mar. 4. Net leverage is a maintenance covenant under Metinvest’s
agreement with PXF creditors, Ryzhenkov confirmed, adding that Metinvest’s
short-term sales planning with a horizon of four-five months does not foresee
the holding breaking that covenant. However, should there be a need, Metinvest
will proactively seek to amend its covenants by approaching its creditors, the
CEO said.

 

For January, Metinvest’s EBITDA is positive, Ryzhenkov
said. Recall, for December, Metinvest’s EBITDA was a negative USD 39 mln (negative
USD 3 mln adjusted for receivables impairment). At the current prices for
Metinvest’s products, the 2020 full year EBITDA will be not less than than for
2019, or USD 1.2 bln, Ryzhenkov guided on the call.

 

Metinvest plans to cut its CapEx about 38% yoy to USD
650 mln in 2020, of which USD 350 mln will be for maintenance (a 51% plunge yoy)
and USD 300 mln for ecology and development (11% less yoy), according to
Ryzhenkov. Until Metinvest’s profitability improves, it will not distribute
funds to shareholders (neither as dividends nor in other forms such as loans),
the CEO said.

 

Regarding production volumes for 2020, total iron ore
concentrate production (excluding Southern Iron Ore) will remain at the 2019
level, 29 mmt. Hot iron production volume should increase 3% yoy in 2020 to
8.15 mmt, while production of crude steel should grow 5-8% in 2020 to 7.9-8.2
mmt.

 

Ryzhenkov confirmed that Metinvest might participate in a tender for PP&E assets of Huta
Czestochowa, a producer of thick plates in
Poland. Metinvest sees value in Huta being a re-roller of the semi-finished
products (slabs) that the holding produces in Ukraine, Ryzhenkov said, adding
that he does not see problems in funding the purchase of Huta’s PP&E should
Metinvest decide to participate in the tender.

 

The CEO also confirmed that Metinvest wants to
increase its stake in Pokrovske Coal assets from the current 25% potentially to
100%, and has approached the Antimonopoly Committee of Ukraine for the required
permission. Metinvest currently has an option to buy the remaining 75% stake in
Pokrovske Coal assets for USD 570 mln.

 

Dmytro Khoroshun: Metinvest
will need to boost its monthly EBITDA to about USD 100 mln on average in 1H20
in order to keep its net leverage below 3x, and this seems a tall order even
after the rise of Ukraine’s FOB export steel prices in November-January. It is
therefore reassuring that Metinvest is able to plan with a four-five month
horizon and to approach its creditors for amending its maintenance covenants if
necessary.

 

We do not see Metinvest defaulting on its debt service
payments in 2020, which are USD 155 mln of principal repayments (excluding
about USD 400 mln of trade finance loans, which Metinvest plans to roll over)
and about USD 205 mln in interest.

 

We maintain our negative view on METINV bonds.