Metinvest Mining and Metallurgical Group has announced a tender offer to buy back up to $70 million of its Eurobonds due 2025 and 2026.
According to a stock exchange announcement by Metinvest B.V., the 2025 Eurobonds will be redeemed at a price ranging from 85% to 92% of the face value, depending on the results of the Dutch auction, while the redemption price of the 2026 bonds has not been determined and will depend on the results of the auction.
The bonds will be purchased for cash.
The offer is valid from April 29, 2024 and expires at 16:00 London time on May 8, 2024.
The Eurobonds due June 17, 2025 were issued in the amount of EUR300 million with a coupon of 5.625%, and the Eurobonds due April 23, 2026 were issued in the amount of $505 million with a coupon of 8.5%. Currently, they are outstanding by $234.195 million and $493.871 million, respectively.
“The rationale for the offer (to repurchase – IF-U) is to use the group’s liquidity outside Ukraine to actively manage the company’s debt burden, mitigate cash outflows for debt service, improve the group’s overall debt position, and reduce liquidity pressure in relation to the upcoming maturities of the 2025 bonds and 2026 bonds, given the group’s continued turbulent operating environment,” the tender offer explains.
It adds that the ongoing war in Ukraine, coupled with volatile commodity prices, presents unprecedented challenges for the company and its subsidiaries.
In addition, although as at 31 December 2023 the company and its subsidiaries outside Ukraine had sufficient cash balances to meet the company’s scheduled interest payment obligations for the foreseeable future, there are certain restrictions on the transfer of cash from its Ukrainian subsidiaries in accordance with the current decisions of the National Bank of Ukraine. And there is no guarantee that these restrictions will be lifted, the document says.
In turn, the proposals give bondholders the opportunity to reduce their risks in the context of the ongoing war. The group’s operations remain subject to a number of risks that are beyond management’s control, including, in particular, an increase in the intensity of Russian attacks on the front line; escalation of attacks on Ukraine’s energy facilities and, as a result, disruption of the availability of the energy system for the group’s operations; uncertainty about the sustainability of Black Sea shipping; staff shortages due to mobilization in Ukraine; and volatile prices for key products.
These risks may adversely affect the price of Eurobonds in the future, the tender justification states.
“Metinvest is a vertically integrated group of steel and mining companies. Its businesses are located in Ukraine – in Donetsk, Luhansk, Zaporizhzhia and Dnipro regions – as well as in the European Union, the United Kingdom and the United States.
The main shareholders of the holding are SCM Group (71.24%) and Smart Holding (23.76%), which jointly manage it.
Metinvest Holding LLC is the management company of Metinvest Group.
Metinvest Mining and Metallurgical Group, including its associates and joint ventures, increased its payments of taxes and duties to the budgets of all levels in Ukraine by 1.7 times year-on-year to UAH 4.2 billion in January-March this year.
According to the company’s press release on Monday, the largest deductions include subsoil use fees, which increased 7.5 times year-on-year to UAH 1.3 billion compared to Q1 2023. The Group also increased its personal income tax payments by 22% to UAH 791 million. In addition, Metinvest transferred UAH 870 million of unified social tax to the budget, which is 20% higher than in Q1 2023.
At the same time, Metinvest’s Ukrainian enterprises paid UAH 407 million in income tax in January-March 2024. Land payments increased by 8% year-on-year to UAH 312 million, and environmental tax by 34% to UAH 182 million.
Yuriy Ryzhenkov, CEO of Metinvest, noted that despite the war in Ukraine and many unfavorable business factors, the Group managed to achieve positive dynamics in payments.
“This is the result of our team’s efforts to improve efficiency in all areas and to adjust the company to the new environment. As the largest taxpayer in the industry, we realize that the economy of the frontline regions and the entire country, as well as the ability to support the army and Ukrainians, depend on our stable operation. And we will do everything to continue to overcome all the challenges of wartime on the way to victory,” the top manager emphasized.
As reported, in 2023, Metinvest paid UAH 14.6 billion in taxes to the Ukrainian budget.
“Metinvest is a vertically integrated group of steel and mining companies. The Group’s enterprises are mainly located in Donetsk, Luhansk, Zaporizhzhia and Dnipropetrovs’k regions.
The main shareholders of the holding are SCM Group (71.24%) and Smart Holding (23.76%), which jointly manage it.
Metinvest Holding LLC is the management company of Metinvest Group.
“Corum Druzhkovka Machine-Building Plant (Corum DrMZ), part of the Corum Group (DTEK Energy), has started manufacturing a 200-ton hoist for Metinvest Mining and Metallurgical Group, the plant reported on Facebook.
“Metinvest’s miners have already started preparing a solid and stable foundation on the air supply shaft No. 3 to install the machine,” the statement said.
Installation of the equipment is scheduled for the fourth quarter of 2024.
The plant also reports that in March it produced 34 units of equipment and more than 111 thousand components and spare parts, including trolleys, anchors, fire pipes and high-pressure hoses, under the conditions of relocation. Also, 35 sections of powered roof supports were repaired.
Corum Group is a leading manufacturer of mining equipment in Ukraine and is part of DTEK Energy, the operating company responsible for coal mining and coal-fired power generation within Rinat Akhmetov’s DTEK holding.
“Corum DrMZ, relocated to Dnipro in 2022, earned almost UAH 500 million in net profit last year, compared to a loss of UAH 452.8 million a year earlier, while net income increased 2.7 times to UAH 1 billion 530 million.
“Metinvest comprises mining and metallurgical enterprises located in Ukraine, Europe and the United States. Its main shareholders are SCM Group (71.24%) and Smart Holding (23.76%), which jointly manage it.
Metinvest Mining and Metallurgical Group is expected to increase its payments to budgets of all levels by 60% year-on-year to over UAH 4 billion from UAH 2.5 billion in January-March this year.
Metinvest’s CFO Yulia Dankova told dsnews.ua that the dynamics of payments is positive, although it is negative compared to the first quarter of 2022, when the company paid UAH 6.9 billion in taxes, but this accrual was based on the results of the pre-war fourth quarter of 2021.
At the same time, she clarified that, in particular, the group’s enterprises in Pokrovsk, located a few tens of kilometers from the front line, paid more than UAH 261 million in taxes and fees in 2023, which is a third of all tax revenues to the local budget. The largest items of deductions are personal income tax in the amount of over UAH 245 million, rent for subsoil use – UAH 8.5 million, property tax – UAH 4.5 million, land payment – over UAH 3 million, and environmental tax – over UAH 2.3 million.
“We believe that this is a significant contribution to the development of local communities and support of the country’s defense capability in general,” said the CFO.
Answering the question about the need to improve tax legislation to enable businesses to operate more efficiently in the war, Dankova explained that Ukraine is still discussing the possibility of introducing tax consolidation.
“For some time it was not in focus. But, given the current realities, we believe that this issue should be revisited, because it is a high-quality tax civilized practice. For example, our coal mining company UCC in the US consolidates taxes and reports for the entire list of legal entities – coal mining companies,” the CFO said.
Another important issue is tax duplication. For example, the group’s mining and processing plants pay several types of taxes for one facility: environmental tax, land tax, waste disposal fee and subsoil tax. Plus income tax.
“These all seem to be different taxes, but we pay a lot of them for just one quarry. It does not seem fair to us, and we believe that taxes are duplicated. We could use this resource for investments that will create new jobs. In addition, this is also budget revenues in the form of import VAT and customs duties. This is an increase in our efficiency, which in turn will generate more income tax,” the top manager is convinced.
As for the situation with VAT refunds for exported products, Metinvest, as an export-oriented company, expects VAT refunds, “and the mechanism is generally working, but there are some important issues that are not being resolved.” For example, some of the counterparties from whom the company purchases services or goods are considered risky by the tax authorities. These counterparties withdraw VAT, and it does not go to the budget, as it should according to the law.
Instead of targeting these risky taxpayers, the tax authorities deny VAT refunds to companies like Metinvest that operate in a formal and transparent manner. In essence, the tax authorities are punishing such companies because their unscrupulous counterparties do not pay VAT to the budget. This practice has been going on for many years.
Now, in the context of military operations, the importance of this problem is growing because it affects working capital. The company does not receive VAT refunds because the government has not learned how to deal with risky taxpayers. Ultimately, the state will see an increase in tax revenues if this issue is resolved. In addition, the tax office will not divert so many resources that can be directed to more useful things, Dankova believes.
The CFO expressed concern about the impossibility of reconstructing enterprises by 2026 as part of the EU’s increased requirements for environmental friendliness and emissions reduction due to the war.
“This is a challenge for Metinvest’s Ukrainian operations. We planned to rebuild our plants to produce low-carbon steel. However, we will not be able to complete the green transformation of our enterprises by 2026 because of the war. We cannot invest in large-scale projects in Ukraine right now. Therefore, there are two options: Ukraine’s accelerated accession to the EU and joining the European Emissions Trading System (EU ETS) or postponing CBAM requirements for Ukraine,” the CFO summarized.
“Metinvest is a vertically integrated group of steel and mining companies. The group’s enterprises are located mainly in Donetsk, Luhansk, Zaporizhzhia and Dnipropetrovs’k regions.
The main shareholders of the holding are SCM Group (71.24%) and Smart Holding (23.76%), which jointly manage it.
Metinvest Holding LLC is the management company of Metinvest Group.
According to Metinvest Group’s annual report, in 2023 Metinvest’s revenue decreased by 11% to $7.397 bln by 2022, mainly due to lower steel, iron ore and coking coal selling prices, which were in line with global rates. Also, sales volumes of pig iron, slabs, flat and tubular products were affected by the war from the suspension of production at Mariupol steel mills. At the same time, Metinvest increased shipments of other products in its portfolio (primarily billets by 6%, long products by 28%, pellets by 70% and coking coal concentrate by 32%), as well as steel and coke resales on the back of higher production at Zaporizhstal.
A significant factor supporting iron ore sales in H2 2023 was the opening of the Black Sea corridor for sales to distant markets.
Also, Metinvest’s revenue in Ukraine grew by 14% to $2.628 bln mainly due to a recovery in demand for iron ore and coking coal, as well as for flat and long products.
In turn, the group has had to make profound changes to its business operations as it continues to strive for adaptability and resilience.
“We have adjusted our supply chain and are strengthening relationships with our suppliers and customers to withstand the current conditions. At the beginning of 2023, the company experienced significant challenges, particularly due to power outages. However, by implementing the necessary changes to respond to this crisis, we were able to achieve a gradual recovery of production,” states the CEO.
He emphasized that the resumption of Ukrainian commercial shipping in the Black Sea later in 2023 was an important moment for Metinvest, allowing to increase capacity utilization. “We are cautiously optimistic about this undoubtedly positive development, while recognizing the ongoing military threats,” the top manager added.
According to him, these developments have directly impacted the group’s financial performance, improving the situation and allowing us to focus on operational efficiency, flexibility and strategic planning for future growth.
“Metinvest remains committed to servicing its debt obligations, having repaid the remaining principal amount of the group’s 2023 bonds redeemed last year on time and in full, while maintaining its deleveraging approach, Ryzhenkov said.
“Although Metinvest has focused its investments in 2023 mainly on maintaining its assets, I firmly believe that we must start preparing for the future. Our ambitions have not diminished; we have laid the foundation for Steel Dream, our visionary vision for rebuilding Ukraine. Despite the war, our commitment to a green transformation strategy also remains unchanged. This vision embodies our determination not only to dream, but also to plan a pilot project on low-carbon steel technology in Italy,” summarized the CEO.
“Metinvest consists of mining and metallurgical enterprises located in Ukraine, Europe and the United States. Its major shareholders are SCM Group (71.24%) and Smart Holding (23.76%), jointly managing it.
COKING COAL, IRON ORE, METINVEST, PIG IRON, REVENUE, ROLLED PRODUCTS, slabs, STEEL
In 2023, Metinvest Mining and Metallurgical Group sold 48% of its steel and mining products in the European Union (EU), compared to 49% in 2022.
According to the Group’s annual report, in 2023, Metinvest sold 35% of its total products in Ukraine (28% in 2022), 2% (7%) in MENA, 1% (3%) in the CIS, 7% (4%) in Asia, 6% (6%) in North America and 1% (3%) in other regions for a total of $7.397 billion ($8.288 billion).
At the same time, the share of the company’s steel segment’s revenue in the EU last year was 50% (49% in 2022), it sold 38% of its steel products in Ukraine (30%), 3% (10%) in MENA, 1% (4%) in the CIS, no supplies in Asia in 2023 or 2022, 7% (6%) in North America, and 1% (1%) in other regions for a total of $4.846 billion ($5.716 billion).
In addition, the company’s share of iron ore sales in the EU in 2023 was 44% (51%), in Ukraine – 30% (22%), in MENA – 0% (2%), in Asia – 20% (13%), in North America – 5% (6%), and in other regions – 1% (7%) for a total of $2.551 billion ($2.572 billion).
