S&P raises Metinvest rating to B

18 September 2019

 

The issuer credit rating of Ukraine's largest steelmaker Metinvest (METINV) was upgraded by S&P to B/Stable from B-/Positive on Sept. 17. The credit rating agency also assigned a preliminary B rating to the new notes Metinvest announced on Sept. 17.

 

As a result of the upgrade, Metinvest is now rated by S&P one notch above Ukraine’s sovereign rating. S&P’s previous action on Metinvest was its January upgrade of rating outlook to Positive.

 

S&P expects the amount of Metinvest’s new notes to be not less than USD 500 mln. The liability management exercise announced Sept. 17 by Metinvest will reduce the holding’s 2023 bond amount to USD 500 mln from USD 945 mln, smoothening the overall maturity profile and strengthening liquidity, the agency said.

 

S&P expects Metinvest’s EBITDA of USD 1.5-1.7 bln per year in 2019 and 2020 in its base case scenario, CapEx of USD 850-900 mln per year (including USD 450-500 mln maintenance CapEx), and distributions to shareholders (mainly dividends) of about USD 300 mln per year. The agency does not expect Metinvest to increase its stake in Pokrovske Coal beyond the current 25% in the next few years.

 

Metinvest’s two other long-term credit ratings are: from Fitch, BB-/Stable, two notches above Ukraine’s sovereign, which was raised also on Sept. 17; and from Moody’s, a B3/Stable grade, one notch above Ukraine’s sovereign, which was raised from Caa1 on Dec. 27, 2018.

 

Dmytro Khoroshun: The upgrade, which was expected after the January outlook upgrade, is well deserved, in our view.

 

One interesting detail is S&P’s estimate of the amount of the new notes, confidently above USD 500 mln. According to our estimates, the amount will be USD 480-500 mln if Metinvest, as it said in the tender offer announcement, will issue the new notes only to cover all payments related to the deal. Considering that S&P also said that the new note issuance will strengthen liquidity, we are wondering whether Metinvest might issue the new notes in an amount larger than covering the deal payments.