Metinvest reports EBITDA growth of 14% in 2014 and proposes another Eurobond restructuring

Because of the military conflict in Donbass and declining prices for steel and iron ore, Metinvest's revenues declined 18% to US$10.6bn, while EBITDA increased 14% to US$2.7bn, boosted mainly by the hryvnia's devaluation, the company announced in its 2014 financial and operational results yesterday. The company also reported that it reduced the sales of steel products by 13% to 12.6mt, iron ore concentrate by 3% to 13.6mt and coking coal concentrate by 17% to 1.8mt, but increased the sales of pellets by 5% to 8.4mt. Metinvest also announced the release of its consent solicitations for a maturity extension on US$113m of its 2015 Eurobonds from 20 May 2015 to 31 January 2016 in exchange for a US$5 cash payment for every US$1,000 of each bond's nominal value. The company also asked for waivers of certain events of default on 2017 and 2018 Eurobonds in exchange for a US$2.5 cash payment for every US$1,000 of each bond's nominal value. Metinvest also reported its default on a US$113m portion of its pre-export financing facility which it plans to reschedule through negotiations with creditors as well.

Investment implications: In 2015, Metinvest remains highly vulnerable to the military conflict in Donbass. All the company's Ukrainian steel-making and coal-mining assets operate near or in the conflict territories and according to our estimates accounted for 60-70% of Metinvest's revenues in 2014. Still, however unstable and fragile the truce in Ukraine's east is, there were first signs of recovering industrial activities in the conflict territories during the last two weeks, as the Ministry of Energy and Coal of Ukraine confirmed starting shipments of coal through the confrontation line, and a number of plants resumed their operations, including Metinvest's Enakievo Steel. However, even if the situation in Donbass stabilizes and Metinvest reaches the target levels of 50% capacity utilization for Enakievo Steel and 70-80% for Mariupol Steel and Azovstal throughout 2015, the company's crude steel output may still fall 15-20% to 7.2-7.6mt in 2015. The pricing environment also looks unfavorable, as steel prices are highly likely to follow the downward direction of iron ore price benchmarks, which fell 32% YTD. In such challenging conditions for Metinvest, another stage of re-profiling the company's debt in negotiations with its creditors looks to us inevitable. For more details of Metinvest's 2014 performance and 2015 outlook, please see our upcoming note.

Источник: ICU