Metalloinvest to Cut Debt by $700 Million by Redeeming Bonds

  • Iron-ore producer may reduce debt to $3.7 billion in July
  • Company to work with current iron-ore price in medium term

Metalloinvest Holding Co. plans to curb debt after Russia’s largest iron-ore producer redeems $700 million of Eurobonds that mature in July.

“We plan to cut debt in absolute figures,” Chief Financial Officer Pavel Mitrofanov said in an interview in Moscow. The company controlled by billionaire Alisher Usmanov is weighing options regarding the Eurobond, but so far sees paying them back as preferable to refinancing, he said, adding that the miner already has sufficient funds to do it. That would cut debt to $3.7 billion from $4.4 billion at Dec. 31.

Iron-ore prices declined more than 40 percent last year, squeezing the miner’s profit and raising debt ratios. The steelmaking ingredient has advanced in 2016, surprising many forecasters who’d expected a fourth year of losses driven by a global glut and slowing demand for steel in China, the largest user. Ore with 62 percent content delivered to the Qingdao port has risen about 20 percent this year to $52.88 a metric ton.

Metalloinvest is preparing to work with the current prices in the medium term, Mitrofanov said. “We are not waiting for the iron-ore price to be back to $100 a ton," he said. To improve sustainability, the miner is investing to boost output of value-added products, such as iron-ore pellets and hot, briquetted iron, or HBI.

Debt Ratio

The company’s ratio of net debt to earnings before interest, tax, depreciation and amortization rose to 2.49 in 2015 from 2.13 a year earlier.

“We are relatively comfortable with this debt level, but will seek to keep the ratio below 3," Mitrofanov said. After paying back the Eurobond, the only debt that matures this year, Metalloinvest will work to curb the debt further. It got a $450 million pre-export finance facility from an international pool of lenders this month and sold 5 billion rubles ($70 million) of bonds in February, which will be used for refinancing of debt maturing in 2017 and 2018, Mitrofanov said.

Despite the plunge in iron-ore prices, Metalloinvest was one of the few miners globally that has maintained its credit ratings. Last year, it considered selling new Eurobonds for refinancing, but decided against this because it wanted a 10-year maturity, while the market was offering a shorter period at a higher rate, Mitrofanov said.

Metalloinvest obtained a credit assessment from China’s Dagong Global Credit Rating Co., which helps when it comes to speaking to the nation’s banks. They took about a quarter of last year’s $750 million loan from international lenders, the CFO said. These lenders are showing higher interest in Russian borrowers now after relations between the two nations became closer, he said.

Capital Spending

The company has trimmed its capital expenditure and sees this at $300 million in 2016, with half of that to finish construction of a third HBI line, Mitrofanov said.

Metalloinvest will also work to increase the ruble share in its debt portfolio because the current structure doesn’t match the revenue currency breakdown. About 60 percent of its revenue is in dollars, while about 75 percent of its debt is denominated in the U.S. currency, Mitrofanov said. The company wants the ruble share in the debt to reflect its portion of revenue.

The iron-ore producer holds about 3 percent in GMK Norilsk Nickel PJSC, Russia’s largest mining company. Metalloinvest see this stake as additional source of funds to cut debt should it need to, Mitrofanov said. While the company hasn’t taken any decisions on buying more Norilsk shares, it’s analyzing the situation, he said. Billionaire Usmanov had urged the company to buy additional stock in the producer in December.

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