Metinvest allowed to buy Dniprovskyy Steel assets

21 May 2021

Ukraine’s largest steel producer Metinvest (METINV) obtained permission from the Antimonopoly Committee of Ukraine (AMCU) to acquire the PP&E assets of Dniprovskyy Steel, a Ukrainian steel plant, according to a May 20 release by the AMCU.

 

Two entities have so far applied for AMCU permission to acquire Dniprovskyy Steel’s PP&E assets, the release said. Participation in the auction for assets does not require prior permission from the AMCU, and the future buyer of the assets might apply for AMCU permission within 30 days after winning the auction, according to the release.

 

Recall, in February Metinvest said it had not decided whether it will participate in an auction for Dniprovskyy Steel PP&E assets. Metinvest mentioned the poor technical conditions of Dniprovskyy Steel assets as a factor preventing the holding from bidding for them.

 

Dniprovskyy Steel entered receivership in October 2020, with creditor claims amounting to UAH 130 bln (USD 4.7 bln), including UAH 20.9 bln (USD 751 mln) by Optimal Trade LLC and UAH 20.7 bln (USD 744 mln) by Metinvest Holding LLC, according to Interfax-Ukraine.

 

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 (7x yoy) and its CapEx was USD 9 mln (2x yoy).

 

Dmytro Khoroshun: We continue to doubt that Metinvest will acquire Dniprovskyy Steel’s assets in the near future even if it decides to participate in the auction for their sale.

 

The reason is the legal risks related to bankruptcy proceedings involving both Dniprovskyy Steel itself and its owner, Industrial Union of Donbas. We think that Metinvest, as a company with a substantial volume of publicly traded debt, might be inclined to let these risks play out before considering acquiring these assets, possibly in a few years from whoever buys the assets at the upcoming auction.

 

Nevertheless, should Metinvest itself win the auction and consolidate the assets in the near future, this would signal to us the holding’s view that the legal risks are manageable and that it intends to bring the assets (via CapEx and operational improvements) to profitability levels commensurate with the acquisition price.

 

We maintain our neutral view on METINV bonds.