Moody's affirms Metinvest rating, upgrades outlook to stable
MOSCOW. April 2 (Interfax) - Moody's Investors Service has affirmed the corporate family rating (CFR) of Metinvest B.V. at "Caa3," and the Ukrainian steel and mining group's probability of default rating (PDR) and national scale rating at, respectively, "Caa3-PD" and "Caa3.ua," Ukrainian media reported, citing a press release from the rating agency.
The outlook for Metinvest's ratings has been upgraded to stable from negative.
The rating action reflects Moody's expectation that the company will continue to generate positive free cash flow in 2024 to create a large cash balance, including in its offshore accounts, in order to maintain current debt servicing and redeem outstanding notes maturing in June 2025, the agency said.
The company's ratings continue to be constrained by the Ukrainian government's ceiling in foreign and local currency, Moody's said. Furthermore, the "Caa3" CFR reflects Metinvest's ongoing operational and logistical risks.
Metinvest is demonstrating financial stability, the agency said. The company's revenue fell 11% to $7.397 billion in 2023. Lower selling prices led to overall revenue drops of 51% and 15% in the mining and metallurgical segments, respectively, for sales and resale of steel, coke, iron ore and coking coal. The pressure on prices was partly offset by an increase in the volume of sales, particularly in the mining segment, with strong sales growth for iron ore concentrate and pellets, while sales in the metallurgical segment remained relatively unchanged, thanks to higher production at Kamestal (billets) and re-rolling assets, as well as stronger resales of steel and coke.
Moody's said it expects Metinvest to benefit from better access to export markets in 2024, which will increase capacity utilization and, consequently, sales volumes. This is expected to more than offset anticipated lower average selling prices and lead to a moderate recovery of profit.
The company will also benefit from an adequate liquidity position in the next 18 months, strengthened by a cash balance of $646 million as of the end of 2023, which is expected to grow in 2024 thanks to substantial positive FCF, the agency said.
However, after 2025 Metinvest will face major debt payments, including the redemption of outstanding senior notes totaling $494 million that mature in April 2026, which are still subject to higher risk of default in the absence of access to debt capital markets, as well as high earnings and recovery of cash flow, Moody's said.
The stable outlook reflects the agency's expectation that Metinvest will increase sales in 2024, exporting a large share, in order to offset the anticipated decline of prices, and maintain a sufficient offshore cash balance to support the timely redemption of the senior notes that mature in June 2025. The stable outlook also reflects the expectation that the company will not see a further deterioration of its production and logistical capabilities.
Metinvest, which has mining and metallurgical operations in Ukraine, Europe and the United States, is 71.24% owned by SCM and 23.76% by Smart Holding.