KYIV. April 10 (Interfax-Ukraine) – Moody’s Investors Service has upgraded Ukraine’s largest steel and iron ore producer Metinvest B.V.’s corporate family rating (CFR) to Caa2 from Caa3 and its probability of default rating (PDR) to Caa2-PD/LD from D-PD, reads a report on the rating agency’s’ website.
“Moody’s has also upgraded Metinvest’s national scale rating (NSR) to B1.ua from Caa3.ua. The outlook on the ratings is stable,” it reads.
Concurrently, Moody’s has withdrawn the Caa3 senior unsecured ratings assigned to Metinvest’s 10.25% notes due 2016 and 8.75% notes due 2018, and the (P)Caa3 senior unsecured rating assigned to Metinvest’s MTN program,” Moody’s experts stated.
“The upgrade of Metinvest’s CFR and PDR follows the completion of its debt restructuring, as announced on March 22, 2017, as a result of which the company is no longer in default on its debt obligations. Concurrently, Moody’s has appended the PDR with the limited default (/LD) designation, which reflects Moody’s view that the completed debt restructuring constitutes a distressed exchange under Moody’s definition of default,” they said.
“The completed debt restructuring includes the replacement of Metinvest’s three eurobond issues with a total outstanding amount of $1.197 million due in 2016-2018, which were in default, with a single eurobond issue of the same aggregated principal, due in 2021, and the replacement of Metinvest’s four pre-export facilities (PXF) of total outstanding $1.109 million due in 2015-2018, which were in default, with a single PXF of the same aggregated principal, due in 2021,” according to the document.
“Metinvest’s Caa2 CFR is constrained by Ukraine’s Caa2 country ceiling for foreign-currency debt. Despite Metinvest’s high volume of exports, the company remains directly exposed to Ukraine’s political, legal, fiscal, regulatory and operating environment, given that most of the company’s upstream and steel-making production facilities are located within Ukraine, although it generates only 25% of revenues from domestic sales,” it states.
“Metinvest’s rating also takes into account the loss of control over the company’s assets in the unstable regions in the east of Ukraine, which will reduce the company’s scale of operations, primarily in the steel segment; Moody’s view that Ukraine’s steel market has limited growth potential because of the continuing macroeconomic challenges and elevated event risks; and volatile prices for steel and feedstock,” the agency said.
“More positively, Metinvest’s rating reflects the modest contribution of assets located in the unstable regions in the east of Ukraine to Metinvest’s consolidated EBITDA (estimated by the company at less than 3% for 2017); the company’s integrated business model, with more than 300% self-sufficiency in iron ore, around 100% in coke and 40% in coking coal; proximity to main export markets and geographic diversification of assets and sales, as around 30% of Metinvest’s operating assets are located outside of Ukraine and the company derives around 75% of revenues from sales in international markets; the company’s healthy liquidity and long-term debt maturity profile following its completed debt restructuring; Moody’s estimation that the company’s leverage declined below 3.5x Moody’s-adjusted debt/EBITDA at year-end 2016 from 8.9x a year earlier, owing to EBITDA growth as a result of the increase in finished steel products output, recovery in steel and iron ore prices, rise in coking coal prices, hryvnia depreciation and cost reduction; moderate foreign-currency risk, as all of the company’s debt and 75% of its revenues is denominated in foreign currency; and the rating agency’s expectation that the company will pursue a conservative financial policy, generate a positive free cash flow and maintain robust financial metrics on a sustainable basis, assuming no major event-driven operational disruptions,” Moody’s added.
