Metinvest to collect at least USD 660 mln from Dniprovskyy Steel

Ukraine’s largest steel maker Metinvest (METINV) is reselling square billets and longs produced by Dniprovskyy Steel within a scheme aimed at settling the latter’s accounts payable for steelmaking raw materials both supplied by Metinvest in the past and being supplied presently, Interfax-Ukraine reported on Oct. 30.

Dniprovskyy Steel will be supplying products for Metinvest’s reselling until the payables are fully settled, said Maksym Zavgorodnyy, the chief operating officer of Industrial Union of Donbas (IUD), which is the holding company for the plant based in the Dnipropetrovsk region. The timing for settling the accumulated payables is not clear and depends on many circumstances, including the market situation, he said.
On Aug. 2, Dniprovskyy Steel’s EGM approved the plant’s purchase of two tranches of Metinvest’s account receivable claim rights (dating back to 2010-2015) to Alchevsk Steel, another IUD asset, with the price for this receivables assignment deal being not higher than UAH 12 bln (about USD 464 mln). Two Ukrainian court decisions from Sept. 11 mention that Dniprovskyy Steel owes Metinvest a total of USD 440 mln for two tranches for these claim rights.

In addition, the court decisions revealed that the receivables assignment contracts, signed by the two parties on Aug. 10, imposed a five-day payment term on Dniprovskyy Steel, which it duly failed to meet. As a result, a 50% penalty (at a total of USD 220 mln) was imposed on Dniprovskyy Steel.
Dmytro Khoroshun: The Alchevsk Steel receivables assignment is a good deal for Metinvest and might allow it to not only increase its cash inflows but also boost EBITDA by reversing a part of its USD 549 mln trade receivables impairment provisions (as of 31/12/2016).

In addition to USD 660 mln of the recently established receivables for raw materials (mostly iron ore concentrate and pellets) that Metinvest supplied to Alchevsk Steel, Dniprovskyy Steel itself might have substantial accounts payable to Metinvest (USD 100-200 mln) for raw material supplies during 2010-2015, according to our analysis of Ukrainian court decisions.

Although increases in cash inflows and EBITDA will not be immediate, we view these potential gains as increasing the risk of Metinvest being able to refinance its PXF and Eurobonds during the next twelve months. We are keeping our neutral view on METINV Eurobonds.