Moodys upgraded ratings of Ferrexpo and Metinvest

13 April 2017

Ratings of both companies were increased from Caa3 up to Caa2, both are still restricted by sovereign foreign currency rating of Ukraine.

Increase of Metinvest rating followed finishing of the companys debt restructuring (which was announced on March 22). The completed debt restructuring includes 1) replacement of Metinvest's three Eurobond issues in total amount of USD 1 197M due in FYs2016-18, which were in default, with a single Eurobond issue of the same aggregated principal, due in 2021; and 2) replacement of Metinvest's four pre-export facilities (PXF) in amount of USD 1 109M due in FYs2015-18, which were in default, with a single PXF of the same aggregated principal, due in 2021.

Metinvest rating also reflects loss of control over enterprises located in the regions of Ukraine not controlled by Ukrainian government.and large volatility of global steel and iron ore markets.

As for Ferrexpo, agency notes significant improvement of liquidity profile of the company due to strong operating cash flow generated in Y2016 following growth of global iron ore prices throughout Y2016. According to Moodys report, the company is to be able to repay its creditors due USD 202m of principal in Y2017 and has good chances to refinance additional USD 328M due in Y2018.

Noting that even if iron ore prices (as predicted by a lot of industry analysts) will decline till the end of Y2017 to USD 50-55/t, annual EBITDA of Ferrexpo will be close to USD 400M, we estimate that the company will face no problems with debt repayments in Y2017. Basing on above assumptions we also expect that cash balance of the company will remain at least on the level of 31.12.16 (USD 145M), so that the company will be well-positioned to repay or refinance debt due in Y2018.

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