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June 20 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Ukrainian-based METINVEST B.V.’s (Metinvest) Long-Term foreign currency Issuer Default Rating (IDR) at ‘B’. The senior unsecured rating on the company’s 2015 and 2018 Eurobonds has also been affirmed at ‘B’/‘RR4’. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is at the end of this release.
The ratings continue to be supported by Metinvest’s position as a leading integrated low-cost steel and iron ore producer in Ukraine. Fitch notes that FY12 was a challenging year for steel producers globally, with Metinvest’s EBITDA margin contracting to 15.2%, well down from 26.4% in FY11. Despite volatile demand conditions and strong pressure on commodity prices, the company managed to maintain a stable financial profile. Over the medium-term, Metinvest’s credit metrics are expected to remain in line with the assigned ratings given the company market leading position and solid operating profile.
- Ratings Constrained by Sovereign:
Metinvest’s Long-term foreign currency IDR remains constrained by Ukraine’s sovereign ratings (Long-Term foreign and local currency IDR ‘B’/Stable), given the company’s exposure to Ukraine for raw materials, the location of its major plants and the size of Ukraine as a significant end-market for its products. Absent the Sovereign constraint Fitch continues to view Metinvest’s stand-alone rating at ‘BB-'.
- Low-Cost Producer:
Metinvest’s ratings reflect its scale as one of the largest Commonwealth of Independent States’ (CIS) producers of steel and iron ore, with domestic sales at 26% of total revenue, a low-cost production base and more than 100% self-sufficiency in iron ore and 65% in coking coal. The ratings also factor in Metinvest’s close proximity to raw material sources, Black Sea ports and key end markets.
- Weaker Steel Market Conditions:
Fitch expects Metinvest’s financial metrics to remain under pressure in 2013 despite lower leverage year on year. Funds from operations (FFO) gross leverage is expected to decrease to around 2.5x for FYE 2013 based on a return to positive free cash flow (FCF) generation, from 3.2x at end-2012. EBITDA margins are expected to contract to between 12%-13% from 15.2% in 2012, on the back of moderately weaker steel demand/prices and lower average iron ore prices.
Positive: Future developments that could lead to positive rating actions include:
- Change in Sovereign Rating:
The ratings would be adjusted in the event of a change in the Ukrainian sovereign rating. The ratings could be upgraded if Metinvest’s reliance on Ukraine materially declined, although this is not expected over the rating horizon. Such action would be considered in combination with maintenance of a sound credit profile including FFO gross leverage below 2.5x over the medium term, and expectations for positive FCF on average.
Negative: Future developments that could lead to negative rating action include:
- Financial Profile:
Negative rating action could result from a sustained weakening of the company’s financial profile as shown by FFO gross leverage above 2.5x and/or an EBIT margin below 6% on a sustained basis.
The rating actions are as follows:
Long-Term foreign currency IDR: affirmed at ‘B’, Outlook Stable
Short-Term foreign and local currency IDR: affirmed at ‘B’
Senior Unsecured foreign currency rating: affirmed at ‘B’ (RR4)
Long-Term local currency IDR: affirmed at ‘B+', Outlook Stable
Short-Term local currency IDR: affirmed at ‘B’
National Long-Term Rating: affirmed at ‘AA+(UKR)', Outlook Stable
National Short-Term Rating: affirmed at ‘F1+(UKR)'