Metinvest signs three-year railway shipping agreement

Ukraine’s largest steelmaker Metinvest (METINV)
reported on Nov. 15 that it signed a long-term agreement with Lemtrans, a
private rolling stock operator, which is also controlled by SCM, Metinvest’s
majority owner. The three-year agreement would secure about 50% of its demand
for railcars, Metinvest said, adding that it’s expanding its own fleet to cover
20% of its transport needs. The remaining 30% would be covered by various
suppliers, with Ukrzaliznytsia being Metinvest’s supplier of choice.

Dmytro Khoroshun: It remains
to be seen how expensive Lemtrans’ services turn out to be under this
agreement. The previous three-year agreement between Metinvest and Lemtrans,
which was in force since September 2013, resulted in rates that were 1% to 15%
higher than Ukrzaliznytsia’s. We recognize the risk of the current agreement
between the two SCM-controlled entities potentially resulting in much higher
markups to Ukrzaliznytsia’s rates, considering the significant problems that Ukrainian
miners have recently had with railcar supplies by this state-controlled entity.
We are keeping our neutral view on METINV Eurobonds as we see a high
refinancing risk for the next twelve months.