Metinvest seeks to smoothen its debt repayment schedule

The top management of steel holding Metinvest (METINV) commented on the earlier announced maturity extension offer of its 2015 Eurobond and requested waivers for cross-default during an April 8 conference call. Having requested postponement of USD 114 mln Eurobond due in May 2015 to January 2016, the management is seeking to buy some time to renegotiate its entire debt portfolio and to work out a new, more sustainable, redemption schedule.

The amount of USD 1.35 bln, or 42% of Metinvest’s total debt of USD 3.2 bln as of end-2014, is due in 2015, which is clearly too high a burden. The key trigger of the current liquidity crunch was a lack of refinancing support from providers of PXF lending. Metinvest is already in continuing default on USD 113 mln of its PXF loans since March, and the holding claims it will not be able to repay another USD 549 mln by January 2016, while the company has been trying to renegotiate new terms with PXF lenders since August 2014.

The holding has no undrawn credit lines at the moment, and management estimates Metinvest’s current cash balance at around USD 160 mln.

During the call, the management did not clarify whether or not the debt reprofiling process will involve the Eurobonds maturing in 2017 and 2018, which suggests the holding does not rule out such opportunity.

Positively, according to the management, Metinvest shareholders have already agreed to waive any dividends from the company in 2015, until such a deal with creditors is reached. In the year 2014, the holding had to pay USD 388 mln in dividends.

The management expects the holding’s capacity load in 2015 will remain at current levels: 75-80% for steel division and around 90% for iron ore mines.

Roman Topolyuk: Clearly, Metinvest is one of the most negatively affected names in the Ukrainian business environment. It has been affected by warfare in Donbas, it is facing operating disruptions that significantly affect its capacity utilization, which is aggravated by plunge of iron ore and steel products prices. However, even in the current circumstances we expect the company’s solvency ratios to be at a healthy level of 1.9x total debt to EBITDA by the end of 2015 vs. the covenant of 3x (1.2x at the end of 2014), unless there is another wave of military escalation in Donbas.

The postponement of USD 114 mln in Eurobonds is not a deal breaker for the company’s ability to deal with the burden of USD 1,354 mln in short-term debt. The PXF lenders should step in after the bondholders had already rescheduled 56% of USD 500 mln notes back in December 2014. That said, we estimate that the suggested waiving of the cross-default clauses would deteriorate the bondholders’ position. We anticipate that Metinvest’s offer would receive mediocre support among public lenders, leading to a possible standoff between the borrower and lenders. We reiterate our negative view on METINV Eurobonds.

Источник: Конкорд Капитал