October 30, 2015 | Cbonds
|Fitch Ratings has affirmed Ukraine-based Interpipe Limited's (Interpipe) Long-term Issuer Default Rating (IDR) at 'RD' (Restricted Default). The senior secured rating of the company's 2017 eurobonds has been affirmed at 'C'. The bond's Recovery Rating is 'RR5'. |
We downgraded Interpipe's Long-term IDR to 'RD' in November 2013 following an uncured payment default. Interest payments are no longer being made. Interpipe continues to face a very challenging sales environment in both its key product segments of pipes and wheels. Interpipe continues to hold discussions with its lending group regarding a restructuring of principal debt repayments. Under the proposed timeline for these talks, Interpipe is scheduled to put a formal proposal to bank and bond creditors by the end of 2015.
KEY RATING DRIVERS
Declining Profitability/Weak Liquidity
We now expect Interpipe to record revenues of USD700-800m in 2015 with EBITDA in the range of USD60m-USD75m. The weakness in end markets continues to be offset by operating cost reductions due to the depreciation of the Ukrainian Hryvnia and Interpipe's own cost cutting programmes. Fixed costs are estimated to have fallen by 35% year-on year in 1H15. As at 1H15 Interpipe had approximately USD15m of unrestricted cash and had no undrawn committed credit lines. With all debt classified as current due to the previous payment default, the group's future liquidity remains dependent on negotiations with its creditors regarding a debt restructuring.
Pipe volumes are now expected to total approximately 500,000 tonnes in 2015 versus over 900,000 as recently as 2013. Volumes have been impacted by a variety of factors including import duties imposed by the Russian government since mid-2013, the loss of a large contract with Rosneft, a weaker competitive position due to the depreciation of the RUB versus the USD (Interpipe's operational currency), and the ongoing conflict involving the two countries, which has impacted trade relations. The company's results have also been impacted by oversupply in the North American OCTG tubes market and several anti-dumping investigations (US, Canada). In 2015 results, pipe segment profitability has been negatively impacted by the steady decline in prices across the year. 2H15 is expected to be materially weaker than the USD28m of EBTIDA recorded in the first half of the year.
We estimate 2014 wheel sales at around 70,000 tonnes, a drop of around 70% since 2013. The fall in sales primarily reflects the collapse of wagon-building activity in Ukraine since 3Q13. Sales continue to be made into Europe at a relatively stable level of around 7,000 tonnes per quarter. Sales also continue to the Ukraine state railways and into the Russian wagon building sector. However, volumes here show more volatility and profitability on these sales (particularly into Russia) is understood to be limited.
Fitch's key assumptions within the rating case for Interpipe include:
- No material recovery in sales of pipes or wheels to the Russian market or recovery in domestic wheel sales over coming year
- 2015 pipe segment volumes of approximately 500,000 tonnes and wheels volumes of around 70,000 tonnes
Negative: Future developments that could lead to negative rating action include:
- Bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, which could lead to a downgrade of Long-term IDR to 'D'.
Positive: Future developments that could lead to positive rating action include:
- Positive rating action may follow the completion of any restructuring process.
Company: Interpipe Limited
|Full company name||Interpipe Limited|
|Country of risk||Ukraine|