Metinvest stumbles into default
The country’s largest mining and steel group Metinvest, owned by billionauire businessman Rinat Akhmetov, has announced that it is in default on previously issued debt securities for $ 113 million. UNIAN tried to find out why the owner of the Iron and Steel Works in the hometown of the fugitive Yanukovych cannot pay his debts.
On Thursday, April, 9 a message appeared on Metinvest’s Web site announcing that the company is in default and was beginning talks with the holders of its 2015, 2017, 2018 bonds on a postponement of the repayment of principal debt.
"The group has announced that it is in default and is beginning three projects to obtain the consent of the holders of its bonds with maturities in 2015, 2017 and 2018 respectively. The purpose of these projects (one project for each issue) is postponing repayment of the principal on bonds maturing May 20, 2015, as well as obtaining consent from bondholders to waive their right to make claims in connection with certain cases of default which have occurred or will occur in the future on bonds with maturities in 2015, 2017 and 2018 respectively,” read the company’s statement.
Starved of cash
As the company noted, negotiations with creditors on pre-export financing are continuing, including for the purpose of the signing of an agreement on consent to waive submission of claims concerning failure to meet certain obligations, which the company said would provide a way for a wider restructuring of the group’s debt.
Experts interviewed by UNIAN believe that the group is indeed in a difficult situation, but it will not stop the production process in companies owned by Ukrainian businessmen Rinat Akhmetov and Vadym Novinsky.
"There is normal workflow. The default applies to pre-export financing, on bilateral loans. Metinvest did not pay one of its debts ($ 113 million) of a total debt of $ 3.2 billion, for which the negotiations on restructuring are continuing,” a specialist on sales of debt securities for Dragon Capital, Serhiy Fursa, told UNIAN.
Another analyst working at Dragon Capital, Kostyantyn Kucherenko, agreed with his colleague, “Negotiations with creditors to extend the debt do not affect the production process. In connection with the difficult situation with liquidity, the group may of course experience a shortage of working capital. At the same time, after the end of active hostilities in the east in February, the company’s operating situation is gradually improving, and even some production lines which were idle, like the Yenakiyevo Steel Plant, are now starting to work. Also the number of orders allocated in iron and steel works owned by Metinvest in Mariupol is growing.”
Metinvest says its problems are caused by a reduction of its net profit in 2014 by almost two times. The slump of the company's revenues, according to its management, was due to the military actions of the Russian terrorists in the Donbas, where the majority of the assets of mining and metallurgical holding are situated. As a consequence, experiencing an extreme money pressure, the company could not pay it back on time some of its debts, which had been taken long before the crisis in Ukraine.
Knowing that the money received last year would not be enough to pay the debt on time, on April 8 Metinvest, the company’s statement says, offered to holders of bonds worth $ 113.7 million to postpone the deadline for their repayment by eight months, to January 31, 2016.
The company also reported on the Web site of the Irish Stock Exchange that a meeting of holders of debt securities would be convened in London on May 1, 2015.
“Most likely, the holders of Eurobonds of Metinvest maturing in May 2015 will agree to extend the bonds for eight months - on the terms proposed by the group or on more favorable terms. Thus, the issue of the company’s debts is likely to be resolved in the near future,” said Kucherenko.
The origins of the problems
Akhmetov’s company also explained that because of the crisis in Ukraine, which affected most of the country's economy, it was not able to gain access to international capital and credit markets to refinance existing debt.
“The internal political and economic situation, which began to deteriorate at the end of 2013, significantly worsened in 2014. The national currency depreciated significantly against major foreign currencies. International rating agencies downgraded the sovereign debt rating, revising its forecast to negative,” explained the situation the CEO of Metinvest, Yuriy Ryzhenkov.
According to the company’s financial report, disruptions in the work of the companies owned by the group continued in March 2015 due to the armed conflict in the east. In February, Metinvest suspended production at the Yenakiyevo plant and its branch in Makeevka – an area which is controlled by Russian terrorists.
“Other plants experienced regular delays [of the supply of raw materials] due to the damage to the railway and energy infrastructure there was blocking of supplies of raw materials,” said the financial report.
In March 2015 the group attempted to obtain the consent of creditors for pre-export financing in relation to the partial postponement of March and April payments on the loan principal. “This consent was obtained from the majority of the creditors, but not the needed 100% of creditors on pre-export financing. As a result, there was a default on payments totaling $ 113 million, which continues to this day,” reads the document released by the company.
To restore normal levels of liquidity and improve it in the future, Metinvest, according to the company's press release, “is not going to be expecting such consent and will continue to direct its efforts on finding a comprehensive solution regarding the restructuring of payments on bonds and pre-export loans.”
In addition, Metinvest announced that it continues to negotiate with the holders of other bonds, the final maturity of which is due in 2017-2018. In the end, the management of Metinvest expresses the will to ensure that none of the creditors files a lawsuit with regard to the company's bankruptcy.
“Although Metinvest has met its obligations, the group was unable, like other Ukrainian businesses to obtain financing on domestic and international debt capital markets. In light of this we have started negotiations with creditors on pre-export financing on obtaining consent to waive submission of claims in the event of default of certain obligations,” said Chief Financial Officer of Metinvest Olexiy Kutepov in the company’s report.
According to him, the negotiations with creditors started by the company are aimed at ensuring the postponement of repayment of principal on the bonds of 2015, maturing in May, and also ensuring the waiving of the right of creditors to make claims in connection with certain cases of default for the period until January, 31, 2016.
“This will give enough time for approval of transparent and fair rescheduling of our debt, with the assistance of our consultants on financial and legal issues,” Metinvest’s financial director said.
At the moment the Metinvest group is the largest Ukrainian producer of iron ore and steel, combining several dozen companies, including Zaporizhstal, Azovstal, Mariupol Illich Iron and Steel plant, Yenakiyevo Steel Plant, Khartsyzsk Pipe Plant and Avdiivka Coke Plant.
The structure of the mining division includes companies for the production of iron ore and flux-dolomite raw materials: Severniy, Inguletsky, Tsentralniy, Yuzhniy processing plants and Komsomolskoye Mining Group, as well as coal mines Krasnodonugol and United Coal Company.
The main shareholders of Metinvest are the financial-industrial groups of two Ukrainian oligarchs - Rinat Akhmetov's SCM (owns 71.24% of Metinvest) and Vadym Novinsky’s Smart-Holding (23.76%).
Along with "Metinvest" Rinat Akhmetov has financial problems in other areas of his business. His largest energy holding DTEK is also in a negotiations process with its creditors on restructuring its debts. The company announced a tender in March 2015 for the restructuring of Eurobonds with a total nominal value of $181 million, maturing in the end of April this year. On April, 9, the company reported that the vast majority of bondholders - 88.59% - had decided to support the company, prolonging the maturity of the Eurobonds.