Metinvest to acquire Dniprovskyy Steel assets

Ukraine’s largest iron ore, coke and steel producer Metinvest
(METINV) will acquire the PP&E and other assets of Dniprovskyy Steel, a
Ukrainian steel plant, according to Interfax-Ukraine July 26 report.

 

Metinvest will pay UAH 9.17 bln (USD 339 mln) for the
assets via its subsidiary Dniprovskyy Coke, the only company that decided to
participate in the July 26 auction, Interfax-Ukraine reported. The initial
price for the assets’ sale at the auction amounted to UAH 8.40 bln (USD 310
mln).

 

Recall, the assets that were offered at the auction
include (in addition to the PP&E assets) UAH 12.4 bln (USD 457 mln) of accounts receivable
(AR).

 

In 2020, Dniprovskyy Steel produced 2.58 mmt of crude
steel (+16% yoy), its revenue was USD 1.02 bln (+2%), and its unadjusted EBITDA
was a positive USD 3 mln (a negative USD 541 mln in 2019), according to the
plant’s 2020 financial report. Its net operating cash flow was USD 11 mln in
2020 (up 7x yoy) and its CapEx was USD 9 mln (up 2x yoy).

 

Dmytro Khoroshun: More information
is needed to assess the effect of this purchase on Metinvest.

 

One potential positive effect is the opportunity to
develop the underinvested PP&E assets that have been acquired cheaply.
Namely, the total price of the PP&E and AR assets, USD 339 mln, is below
the notional value of the AR assets, USD 457 mln.

 

Another positive is the additional security Metinvest
will now have in both selling the steel produced by the assets and supplying
its raw materials for the steel production.

 

Metinvest’s decision to acquire the assets means that
the company views the risks, such as the legal ones associated with the
bankruptcy of Dniprovskyy Steel and its owner, Industrial Union of Donbas, as manageable, we
conclude.

 

We maintain our neutral view on METINV bonds.