Metinvest Mining and Metallurgical Group, which on September 17 announced an offer to buy back $440 million eurobonds from the $944.515 million issue with maturity in 2023 and a 7.75% coupon and issue new bonds, has received bids for buyback from eurobond holders for $639.391 million. “The estimated scaling factor is approximately 71.265%,” Metinvest reported on the Irish Stock Exchange. According to the terms of the offer, other eurobond holders can still apply for redemption until October 15, inclusive, but they will no longer receive a 3% premium for early applications.
“The purpose of the offer is the proactive management of debt repayment, extending the maturity of the debt and reducing refinancing risks,” Metinvest said.
The buyback price for those who agree to sell before September 30 is 106% of the face value plus accrued interest.
The pricing of new eurobonds is preliminarily scheduled for October 1, the results of the offer are summarized on around October 16 in order to carry out all settlements on October 17.
A source in banking circles told Interfax-Ukraine that Metinvest had held meetings with investors in the United States, Great Britain and continental Europe from September 18 to September 27. The organizers are Deutsche Bank, Natixis and UniCredit. The company intends to place dollar-denominated eurobonds with a maturity of eight to ten years, and will also consider the possibility of a tranche in euros for five to seven years.
Fitch Ratings has upgraded Ukrainian integrated steel company Metinvest B.V.’s (Metinvest) Long-Term Local- and Foreign-Currency Issuer Default Ratings (IDRs) and senior unsecured bonds to ‘BB-‘ from ‘B+’. The Outlook is Stable.
“The upgrade follows Ukraine’s Country Ceiling upgrade to ‘B’ from ‘B-‘on 6 September 2019. The IDR of Metinvest remains two notches above the Country Ceiling,” Fitch said in a report.
Fitch said that this happened due to its comfortable hard-currency (HC) external debt service coverage, and also its ‘BB’ category business and financial profiles.
In addition, S&P Global Ratings raised Metinvest’s issuer credit rating and its issue ratings on the existing notes to ‘B’ from ‘B-‘. The Outlook is Stable.
S&P said that the Ukrainian steel maker Metinvest has built a track record of balanced financial policy in the past 18 months, with relatively low gearing and positive free cash flow, supporting an adequate spending between growth and shareholder returns.
The two agencies also assigned preliminary ratings to senior unsecured notes of at least $500 million proposed by Metinvest to issue at once after purchase for cash up to $440 million notes in circulation: Fitch – ‘BB-(EXP),’ and S&P – ‘B.’
“The proposed senior unsecured notes of at least $500 million will smooth the maturity profile and strengthen liquidity,” S&P said.
Fitch expects Metinvest’s HC external debt service cover ratio to be comfortable at above our 1.5x threshold on a 18-month rolling basis, allowing the company’s IDR to remain two notches above Ukraine’s ‘B’ Country Ceiling . The top line of the ratio is mainly comprises substantial export EBITDA, aided by abroad EBITDA and cash. The bottom line of the ratio represents HC debt service, comprising principal repayments and interest payments, which are fairly smooth over 2019-2022. The company faces a $945 million notes maturity in 2023 but this would be addressed by the upcoming notes issue, which will improve HC external debt service coverage for 2023.
Fitch said that since the last rating action in April 2019 we have revised Metinvest’s full-year EBITDA down to slightly above $1.5 billion in both 2019 and 2020 and slightly under $1.5 billion in 2021 and 2022, reflecting sharper-than-previously expected price contraction across the steel value chain.
Fitch said that Metinvest is an important eastern European producer of metal products (8.8 million tonnes in 2018) and iron ore (27.3 million tonnes of concentrate and pellets in 2018), with around 300% self-sufficiency in iron ore but only 40%-45% in coking coal.
“The steel segment’s proximity to Black Sea and Azov Sea ports allows the company to benefit from both cheaper steel exports and seaborne coal imports logistics. The operations are also further integrated into downstream operations in Italy, Bulgaria and the UK. Partial integration into key raw materials and exposure to high value-added products help Metinvest mitigate but not avert steel market volatility,” Fitch said.
Fitch said that the conflict in eastern Ukraine continues to pose risks to day-to-day operations. Metinvest’s exposure to the risks of conflict escalation remains high relative to its EMEA peers, although Fitch admitted that most of its 1H19 EBITDA is generated by its mining assets located substantially farther from the conflict zone.
S&P expects that the company will maintain an adjusted funds from operations (FFO) to debt of 35%-40% in 2019 and 2020, well in the range commensurate with the current ‘B’ rating (20%-40%), with a positive discretionary cash flow (free cash flow after capex and dividends).
“We believe that the current market conditions will have a mixed impact on the company’s results in 2019,” S&P said.
“We expect Metinvest to benefit from the abnormal iron ore and pellet prices. Under our calculations, the EBITDA would need to fall to about $1.1 billion in 2020, compared with $1.5 billion-$1.7 billion in our base case, before witnessing a pressure on the rating,” S&P said.
Metinvest B.V. (the Netherlands), the parent company of Metinvest mining and metallurgical group, in January-June of this year reduced international sales by 7% compared to the same period last year, to $4.190 billion, providing 72% of consolidated revenue. According to preliminary unaudited interim financial results for the first half of 2019, sales in Ukraine fell by 3% during the reporting period, to $1.628 billion as a result of lower prices and sales of flat products amid a weaker demand from pipe producers, as well as lower coke sales volumes due to reduced production volumes. As a result, the share of Ukraine in consolidated revenue increased by 1 percentage point, to 28%.
The report notes that in the first half of 2019, sales to Europe fell by 2%, mainly due to lower prices for the sale of steel products. At the same time, the region’s share in consolidated revenue grew by 1 p.p., to 35%. Sales to the countries of the Middle East and North Africa were down by 22% against the background of a decrease in sales of semi-finished products and flat products, as well as lower sales prices for these goods. As a result, the region’s share in consolidated revenue decreased by 4 percentage points, to 17%.
Sales in the CIS countries fell by 6% due to lower sales prices and sales volumes of long products, while the region’s share in consolidated revenue remained at 7%. Sales in Southeast Asia grew by 66% due to growth in sales volumes of slabs, square billets and iron ore products. As a result, the share of this market in consolidated revenue increased by 3 p.p., to 7%.
ISD Polska, the structure of Industrial Union of Donbas (ISD), has said it considers Metinvest Group as the most acceptable and promising option for the bankrupt Huta Czestochowa still mill in Poland.
ISD Polska Board Chairman Konstanty Litwinow by telephone from Poland on Friday told the Interfax-Ukraine that Metinvest is the most optimal potential investor involved in new proposals in the bankruptcy lawsuit of the Polish metal enterprise.
Litvinov did not specify new circumstances and requirements for potential investors of the steel mill, but noted that Metinvest has long been interested.
“They have long been interested in the enterprise. They visited us, did due diligence, so they have a complete picture of the situation,” he said.
Litwinow said for Metinvest the acquisition of the Polish steel mill is a logical continuation of the chain for the production of metallurgical products, which can be sold on the European market.
“Previously, there was a chain with the Alchevsk Steel Works (currently located in Russia-occupied Donbas). But there were no mining enterprises in the chain, and the coke and chemical division was insufficient. But Metinvest has all this. Therefore, gaining control over this the plant is logical and is the completion of the full metallurgical cycle for the supply of products to the EU,” Litwinow said.
He did not specify whether additional negotiations on this topic were held with Metinvest, but said relevant information was sent to potential investors.
Litvinov said a court decision is expected next week regarding investor Huta Czestochowa, which will mainly determine further actions.
Litvinov said earlier that a potential buyers of Huta Częstochowa is Chinese company Sunningwell International Polska, which offered the company 240 million zlotys (about $60 million). At the same time, there are several more companies that are also interested in the steel mill.
As reported, the ISD signed a purchase agreement for the Huta Czestochowa steel mill in early July 2005.
ISD, founded in 1995, is an integrated holding company that holds shares in metal and mining companies. It incorporates Alchevsk Steel Works, Dzerzhynsky Dniprovsky Steel Works, Dunaferr and ISD-Huta Czestochowa.
Metinvest, the vertically integrated steel and mining group of companies, has signed its first smart contract on we.trade blockchain trade finance platform supported by UniCredit.
According to a press release provided by Metinvest Group, this blockchain transaction demonstrates the importance of digitalization in the steel industry.
“Importantly, this is the first blockchain transaction provided by UniCredit to Metinvest Group and is a new digital instrument for us. Blockchain technology allows for the creation and management of a large distributed transaction management database that can be shared across multiple nodes of a network. Such transactions demonstrate the Group’s willingness to work in a trusted environment with secure technology, improved risk mitigation and enhanced visibility,” a press service quotes Head of Corporate Finance at the European Re-rolling Business Unit of Metinvest Group, Jamilya Baimukhambetova, as saying.
According to the press release, the underlying transaction is the purchase of equipment for one of Metinvest’s production re-rollers from a European supplier. One of the pilot project’s objectives is to try the new platform from the client side, so that the Group can evaluate its potential as a new type of payment terms that it can offer to some of its major customers.
Exploring the potential of blockchain trade finance is one way that Metinvest Group is implementing its digital innovation strategy, the Group said in its press release.
The we.trade platform works in partnership with major European banks (Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Italy, Netherlands, Norway, Spain, Sweden and Switzerland) and is based on distributed ledger technology, the major underlying elements of which include blockchain and smart contracts. When a smart contract is created on the we.trade platform, the payment will be automatically triggered according to the terms agreed by the counterparties once the buyer has confirmed the delivery of the goods, making the transaction considerably faster and more transparent.
According to the press release, we.trade is a truly successful inter-bank collaboration that can help to redefine business relationships among companies, removing obstacles that typically make international transactions costly and complex while delivering benefits for corporates.
Metinvest Group is a vertically integrated group of steel and mining companies that manages every link of the value chain, from mining and processing iron ore and coal to making and selling semi-finished and finished steel products. It comprises steel and mining production facilities located in Ukraine, Europe and the US, as well as a sales network covering all key global markets. Metinvests business is divided for financial reporting purposes into two segments: metallurgical and mining. The Group ended the first quarter with revenues of $2.9 billion and an EBITDA margin was 15%.
Metinvest Holding LLC is the management company of Metinvest Group.
Metinvest B.V. (the Netherlands), the parent company of the international vertically integrated mining and metallurgical group Metinvest, has become a member of the Dutch Association of Metallurgical Industry (VNMI). According to a press release from the company, the trade association of Dutch producers of raw materials, semi-finished goods and finished steel products VNMI was established in 2000, uniting more than 80% of the players in the steel industry in the Netherlands.
The association represents Dutch steelworkers in European business associations in The Hague and Brussels. VNMI focuses on four areas: health and safety, energy and climate, sustainability and corporate social responsibility, trade and innovation.
It is noted that Metinvest Group has been developing these areas since its creation. The company supports global initiatives and participates in international environmental projects. In 2010, Metinvest joined the UN Global Compact.
