May 10, 2018 | Cbonds
|Ukraine’s largest steelmaker Metinvest (METINV) reported on May 8 that it has voluntarily repaid ahead of schedule the amount of the PXF due in the first year after its recent refinancing and restructuring deal. The holding said that this prepayment reduced the amount of the PXF loan outstanding to USD 624 mln from USD 765 mln right after the deal.|
This early repayment allowed certain PXF agreement restrictions to be eased, including some restricted payments, Metinvest said. It reported it used USD 205 mln in additional liquidity generated in the recent deal for the prepayment.
Dmytro Khoroshun: Metinvest is now ready to pay dividends, if needed, for matters such as financing payments related to the USD 821 mln arbitration award to Raga against Metinvest’s majority owner, SCM group.
Indeed, the amount by which Metinvest reduced the PXF loan outstanding, USD 141 mln, is more than our estimate of what is needed for dividends to be allowed under the PXF facility agreement, or USD 90 mln. We believe the “restricted payments” unlocked by the repayment of the PXF that Metinvest explicitly refers to in its release are in fact dividends. Metinvest should be able to pay USD 309 mln in dividends immediately from its 2017 profit (SCM should receive 75%, or USD 232 mln). Also, Metinvest should be able to provide further liquidity to SCM via dividends from its 1H18 profit (not earlier than July-August) and possibly via working capital flows (accounts payable at the end of 2017 amounted to USD 317 mln to Zaporizhstal and USD 400 mln to Southern Iron Ore, both related parties).
If Metinvest provides substantial amounts of cash to SCM, especially in a short amount of time, it would be negative for Metinvest’s credit. However, if SCM negotiates with Raga and spreads the payments over several years, then Metinvest’s operating cash inflows should be sufficient to cover the entire USD 821 mln award amount several times over, provided steel and iron ore markets do not crash. Furthermore, SCM might continue to fight Raga in courts and overturn, or substantially delay, its obligation to pay the award.
The prepayment itself might prove negative for the ratings of Metinvest's Eurobonds in particular. For example, Fitch justified assigning Metinvest a Positive outlook by citing the holding’s generation of additional liquidity as a result of the deal. However, Fitch estimated the additional liquidity after all fees and interest payments as only USD 90 mln. Therefore, we believe the holding having spent at least USD 141 mln on prepaying its PXF creditors right after the deal might be negative for the Eurobonds.
|Status||Country of risk||Maturity (option)||Amount||Issue ratings (M/S&P/F)|
|Full company name||Metinvest B.V.|
|Country of risk||Ukraine|
|Country of registration||Netherlands|