Ukraine's Metinvest hopeful of restructuring debts

By bne IntelliNews April 20, 2015

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Ukraine's leading steelmaker Metinvest hopes to reach an understanding with its creditors after defaulting on pre-export financing (PXF) loans, CEO Yury Ryzhenkov said.

Metinvest bondholders will vote on April 29 and May 1 on whether to allow another maturity extension of a $114mn Eurobond maturing in May.

The company's creditors acknowledge its solid earnings potential and the difficulty of the current circumstances, and Metinvest should be able to reach “some solution” with them, Ryzhenkov said in an interview with business daily Delo on April 16.

It is expected to take until the end of the year to reach a final agreement with creditors, he added. “All our creditors undersand that our plants are in a normal economic condition, and we continue to export production," he told the paper. "Yes, there are difficulties connected with the armed conflict in the east of Ukraine, difficulties with access to financial markets. And these difficulties are probably the main reason we are in this situation."

Ryzhenkov argued that Metinvest is currently not in full default, but in limited default, according to Fitch. “Put simply, we have simply stated publicly that we are in talks with creditors over debt restructuring,” he said. “I think we will reach some decision or other which we can implement,” he added.

Metinvest has been criticised for paying out dividends to shareholders while entering default, but Ryzhenkov argued that the dividends were for 2013 and most of the sum had been lent back to the company as a credit for working capital.

He placed the blame for Metinvest's financial distress partly on the government failing to refund VAT paid on exports. “Debts on [non-return] of VAT confirmed by us and the state amount to UAH3.5bn. Unfortunately we can't see any serious progress at the moment. ... Currently we are have arrears of around $113mn to our creditors. The state's debt to us on VAT according to the current exchange rate is more than $150mn,” Ryzhenkov said.

The company's head also blamed the state for twice hiking rail freight tariffs in the course of the year. At the same time, Metinvest has been hit hard by a collapse in world prices for iron ore, from $120 per ton in 2014 to around $47-50 per ton currently. “Our iron ore assets are now on the edge of becoming lossmaking,” he said. “Any further hike in rail tariffs will make them so,” he added.

“The wording 'mutual understanding with creditors' doesn’t directly imply that the deal with PXF lenders would be inked at once,” writes Roman Topolyuk of brokerage Concorde Capital in a research note. “If that were the case, it could have already materialised without initiating another troublesome voting procedure on the outstanding 2015 Eurobond,” he added.

“While we believe that the PXF lenders are not inclined to run the steel business in Donbas by themselves, and would have to find some compromise with the management, the timeframe towards reprofiling of the non-public debt is uncertain,” Topolyuk believes.


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