Metinvest's 9M14 EBITDA rises, 2015 bond restructuring successful

In its 9M14 trading update released yesterday, Metinvest reported its EBITDA up 13% YoY to US$2.046bn, despite the company's revenues from sales dropped 14% YoY to US$8.461bn. As Metinvest's net debt decreased from 31 December 2013 by 8% to US$3.23bn as of 30 September 2014, the company's net debt/LTM EBITDA ratio improved from 1.5x to 1.3x, respectively. In a separate statement, Metinvest reported it accepted for the exchange offer a US$386m nominal value of its Eurobond notes due April 2015. Following this exchange, the existing notes with a US$114m nominal value and a 10.25% interest rate remained outstanding. As a result, Metinvest released new notes with a maturity in November 2017 at a 10.5% interest rate and a nominal value of US$289.7m, with a cash component paid in the amount of US$96.6m.

Investment implications: While Metinvest's selling steel prices declined insignificantly YoY, in line with the FOB Black Sea benchmark, the Metallurgical division's revenues take the brunt from raw material supply disruptions at Azovstal and Ilyich Steel and operations shutdown at Yenakieve Steel as a result of the military conflict in Eastern Ukraine. The Mining division's revenues were hit most of all by rapidly falling benchmark prices for iron ore and lower iron ore sales volumes, which declined faster than production. Nevertheless, the negative impact from lower sales volumes and prices was fully absorbed by the FOREX effect of the hryvnia's depreciation, which contributed to EBITDA US$1bn, and savings effect from lower consumption and prices of raw materials (plus another US$0.5bn to EBITDA). We expect that the military conflict and lower iron ore prices will even further undermine Metinvest's EBITDA in 4Q14, however the FOREX impact from lower hryvnia will also strengthen. As a result, we believe that the whole-year EBITDA of Metinvest will be in the range of US$2.0-2.3bn in 2014, not far from its 2013 level, US$2.3bn. In an increasingly challenging environment, we view the successful finalization of Metinvest's 2015 note restructuring as important for the company's efforts to minimize cash flow losses.

Источник: ICU