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.
Fitch Ratings has upgraded Ukraine’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to ‘B’ from ‘B-‘, the outlooks are positive, according to a report on the rating agency’s website.
“Ukraine has demonstrated timely access to fiscal and external financing, improving macroeconomic stability and declining public indebtedness, while a shortened electoral period has reduced domestic political uncertainty. Expected macroeconomic policy continuity, the new government’s strong stated commitment to structural reforms and engagement with IFIs mean that Fitch expects further improvements in creditworthiness,” the report says.
“President Volodymyr Zelensky’s strong popular support and his party’s control of government and parliament provide the government with a uniquely strong position to move ahead with its reform-minded policy agenda. After a commanding victory in the second round of presidential elections, the president’s party Servant of the People (SOP) obtained control of the Verkhovna Rada (256 out of 450 seats) in snap parliamentary elections (originally scheduled for end October). The recently formed government under Prime Minister Oleksiy Honcharuk includes technocratic, pro-western and reform-minded ministers. Key economic policy makers such as Minister of Finance Oksana Markarova remain in their positions, supporting the continuity of policies underpinning reduced macroeconomic imbalances and improved stability,” Fitch said.
“The new prime minister intends to negotiate a new and longer program with the IMF, possibly an Extended Fund Facility (EFF), in the near term. The high likelihood of continued IMF engagement will facilitate access to official and market financing to meet large sovereign debt repayments in 2020-2021, and serve as an anchor for policies and reforms that could potentially lift growth prospects,” the agency experts stated.
“Prudent fiscal management, stable growth, declining interest rates and moderate exchange rate depreciation pressure will support continued government debt reduction. We expect government debt to decline to 47.9% of GDP (55.8% including guarantees) by end-2019, down almost 20 p.p. from the peak of 69.2% (80.9% including guarantees) in 2016 and below the current 57.5% ‘B’ median, and reach 44.4% by 2021. Government debt dynamics are highly exposed to currency risk as 67% is foreign currency denominated, but greater non-resident participation in the local bond market will help increase the share of local currency debt and extend maturities,” according to the document
“The long-awaited increase in Ukraine’s credit rating was made possible thanks to macroeconomic stabilization, a decrease in government debt and a reduction in political risks. This means that confidence in Ukraine is growing, and the risks associated with our creditworthiness are decreasing. And most importantly, the cost of borrowing will decrease,” Finance Minister of Ukraine Oksana Markarova said.
S&P Global Ratings affirmed its ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings on Ukraine. The outlook is stable. “While the economy is growing and inflation is on a downward path, the financing outlook is uncertain for government foreign currency redemptions beyond 2019, when Ukraine will have to negotiate a fresh agreement with the International Monetary Fund (IMF),” S&P said.
Ukraine faces sizable external debt repayments against the backdrop of presidential and parliamentary elections in 2019.
The stable outlook reflects our expectation that Ukraine will broadly comply with the terms of the $3.9 billion IMF stand-by arrangement, potentially with some delays.
Ratings pressure could build if disruptions to funding from concessional programs or capital market access over the next year call into question Ukraine’s ability to meet large external repayments over the remainder of the year and in 2020.
“An adverse final ruling in Ukraine’s legal battle with Russia over a Eurobond issued in December 2013, and held by Russia, could have implications for Ukraine, in our opinion. Such a ruling could be some years away. However in a worst-case scenario, it might create technical constraints for Ukraine’s ability to repay its commercial debt held by other creditors, which would pressure the ratings. We note that the government believes there is no potential for technical constraints on debt service, even in the case of an adverse ruling in the future,” S&P said.
“We could consider a positive rating action if we see improvements in growth, fiscal and external imbalances beyond our expectations, and if we conclude that the security situation in the non-government-controlled areas in the East of the country has stabilized and further escalation is unlikely,” S&P said.
Yuliya Tymoshenko, leader of the All-Ukrainian Union Batkivschyna (Fatherland) party, has been on the top in presidential ratings in Ukraine, being followed by such candidates as showman Volodymyr Zelensky, the leader of the Civil Position party Anatoliy Hrytsenko, the leader of the Opposition Platform — For Life bloc Yuriy Boiko, and the incumbent president Petro Poroshenko. This has been established as a result of an all-Ukrainian opinion poll jointly conducted by the Ukrainian Oleksandr Yaremenko Institute for Social Research and the Social Monitoring Center from December 1 to 10, 2018.
Some 14.8% of those polled said they would vote for Tymoshenko in the upcoming presidential elections in Ukraine, which are due on March 31, 2019. The other candidates have the following ratings: 8.8% for Zelensky, 8.6% for Hrytsenko, 8.3% for Boyko, and 8.1% for Poroshenko. At the same time, 14.1% of those polled could not provide an answer and another 11.8% said they would not go to vote at all.
Among the respondents who have made up their mind and are going to cast their votes in the elections in March, 20% would vote for Tymoshenko, 11.9% would vote for Zelensky, 11.6% would vote for Hrytsenko, 11.1% would vote for Boiko, and 10.9% would vote for Poroshenko. Some 3.2% of those polled said they would vote for some other candidates.
A total of 2,198 people were polled in face-to-face interviews across Ukraine for the exception of the temporarily occupied territories. The sample standard deviation is not more than 2.1%.
Yuliya Tymoshenko, leader of the Batkivschyna (Fatherland) party, has been taking the lead in the presidential ratings, with showman Volodymyr Zelensky coming second and the incumbent President Petro Poroshenko coming third, a poll conducted by the Kyiv International Institute of Sociology has shown. According to the results of the poll that were announced at a press conference at the Kyiv-based Interfax-Ukraine news agency, if the presidential elections were to be held in November and the respondents could only choose from 37 candidates, then 11.9% (21.2% of those who have made up their minds) would vote for Tymoshenko, 8.2% (14.6%) – for showman Volodymyr Zelensky, 6.5% (11.6%) – for the incumbent President Petro Poroshenko, 6.2% (11%) – for the leader of the Opposition Platform — For Life Yuriy Boyko.
Also, 4.9% (8.7% of those who have made up their minds) would vote for the leader of the Radical Party Oleh Lyashko, 4.6% (8.2%) – for the leader of the Civil Position party Anatoliy Hrytsenko, and 2.1% (3.8%) would vote for the rockstar and civil activist Sviatoslav Vakarchuk.
At the same time, 27.6% of the people polled could not make their choice, 9.3% decided not to take part in the vote, and 4.7% would strike off all the candidates or destroy their ballot.
The poll was conducted by the Kyiv International Institute of Sociology from November 23 to December 3, 2018. A total of 2,000 people were polled in 110 towns across Ukraine except for Crimea and the occupied territories in the Donetsk and Luhansk regions.
The statistical error of the sampling is no more than 3.3% for figures close to 50%, 2.8% for figures close to 25%, 2% for figures close to 10%, and 1.4% for figures close to 5%.
S&P Global Ratings has raised its long-term national scale ratings on Ukraine to ‘uaBBB’ from ‘uaBBB-‘ and removed the UCO designation from the ratings.
“Our global scale issuer and issue credit ratings on Ukraine are not affected by today’s rating action,” S&P said.
On April 20, 2018, S&P Global Ratings affirmed its ‘B-/B’ long- and short-termforeign and local currency sovereign credit ratings on Ukraine. The outlook is stable.
According to the report, the next scheduled rating publication on Ukraine will be on Oct. 19, 2018.
S&P recalled that National scale ratings express its opinion of the creditworthiness of an issuer or a debt instrument relative to other issuers and issues in a given country. The purpose is to provide a rank-ordering of credit risk within the country.
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