Metinvest (B2/B/BB-): our view on new Eurobonds’ fair yield

On September 15, Metinvest (B2/B/BB-) started the road show of new dollar-denominated eurobonds with expected maturity in 2027. The issuer is seeking to attract at least $300 mln. The company has also offered to buy back its eurobonds maturing in 2021 and 2023 for a total amount of up to $290 mln. In particular, it is planned to keep Metinvest 23 in circulation for the amount of at least $300 mln (now – $504.5 mln). The Metinvest 21 bonds may be redeemed upon approval of 75% of holders ($115.3 mln in circulation). According to the promulgated terms, 2021 eurobonds are redeemed at a price of 103% of the face value and 2023 eurobonds at 104.25% of the face value.

The new notes book is expected to open on Thursday, September 17. The indicative yield has not been announced yet. We estimate that the seven-year eurobonds should be placed with a yield of at least 7.8-7.9%, which fits the issuer’s curve. The news about early redemption had little effect on the bonds’ prices.

Total debt of Metinvest is estimated at $3.01 bln, almost unchanged from the beginning of the year, according to the consolidated statements for 1H20. Short-term debt accounted for nearly $650 mln. Thus, the new deal will help to further extend repayment period, although it already looks quite comfortable. After Metinvest 21 notes redemption, the company’s funding needs for the next year will almost fully be covered by free cash balance. Given good operational and financial indicators (reflected in the recently published 1H20 financial statements), still high steel prices and low liquidity risks, we do not rule out an upgrade of the issuer’s credit rating in the near future.