10:23 27.03.2015

Moody's downgrades ratings of Ferrexpo, Metinvest, MHP to Caa3

4 min read
Moody's downgrades ratings of Ferrexpo, Metinvest, MHP to Caa3

Moody's Investors Service on March 26 downgraded to Caa3 from Caa2 the corporate family ratings (CFRs) and to Caa3-PD from Caa2-PD the probability of default ratings (PDRs) of three companies operating in Ukraine (Ferrexpo Plc, Metinvest B.V. and MHP S.A.).

As Moody's said in a statement, the rating action follows Moody's decision on March 24, 2015, to (1) downgrade the Government of Ukraine's sovereign (government bond) rating to Ca from Caa3 with a negative outlook, and (2) lower the country's foreign-currency bond country ceiling to Caa3 from Caa2.

Concurrently, Moody's downgraded the national scale corporate family ratings (NSR) of Metinvest to Caa3.ua from B1.ua and MHP to Caa2.ua from B2.ua. In addition, Moody's downgraded the ratings on the senior unsecured notes and the MTN programme issued by Metinvest B.V. to Caa3/(P)Caa3 from Caa2/(P)Caa2, and downgraded the senior unsecured notes issued by Ferrexpo Finance plc and MHP S.A. to Caa3 from Caa2. The outlook on all the ratings is negative.

According to Moody's, the recent action primarily reflects the constraints of Ukraine's lower foreign currency ceiling on the ratings of the affected companies. The three issuers are directly exposed to Ukraine's political, legal, fiscal and regulatory environment, given that most or all of their assets are located within the country and because their debt is mostly in foreign currency.

The companies' capacity to service their foreign currency debts could be negatively affected by the potential actions taken by the Ukrainian government to preserve the country's foreign-exchange reserves. In addition, the companies' revenues and cash flows generated in the country are exposed to foreign-currency transfer and convertibility risks, which are reflected in the Caa3 foreign-currency bond country ceiling for Ukraine.

Moody's says that the negative outlook is in line with the negative outlook for the sovereign rating and reflects the fact that a potential further downgrade of Ukraine's sovereign rating may result in the further lowering of Ukraine's foreign- and/or local-currency bond country ceiling, which in turn will lead to downgrades of the three rated issuers. In addition to considerations related to the sovereign rating, Moody's will also be monitoring the companies' individual ability to address increasing country and foreign-exchange risks.

The companies' ratings will be ultimately dependent on further developments at the sovereign level. The ratings are likely to be downgraded if there is a further downgrade of Ukraine's sovereign rating and/or lowering of the foreign-currency bond country ceiling.

Conversely, positive pressure could be exerted on the ratings if Moody's were to raise Ukraine's foreign-currency bond country ceiling, provided there is no material deterioration in the company-specific factors, including their operating and financial performance, market positions and liquidity.

Metinvest B.V., registered in the Netherlands, is the holding company of a vertically integrated group, Metinvest, which is one of the largest steelmakers and iron ore producers in the Commonwealth of Independent States (CIS). The company produces finished flat- and long-steel products, large diameter pipes and semi-finished steel products (slabs and billets), pig iron and coke products, iron ore and coking coal concentrate as well as pellets. In the first nine months of 2014, Metinvest produced approximately 7.5 mt (2013: 9.4 mt) of crude steel, and 26.5 mt (2013: 27.7 mt) of iron ore concentrate, and 3.3mt (2013: 4.4 mt) of coking coal concentrate. In the first nine months of 2014, Metinvest reported revenue of $8.5 billion (2013: $9.8 billion) and EBITDA of $2.0 billion (2013: $1.8 billion). The company is privately owned, with the major shareholders of the group being a Ukrainian investment holding company, System Capital Management (SCM), which has a 71.24% share in Metinvest, and Smart group, which owns 23.76%.

MHP S.A., domiciled in Luxembourg, is one of Ukraine's leading agro-industrial groups. The company's operations include the production of poultry and sunflower oil, as well as the production and sale of convenience foods. In addition, MHP is vertically integrated into grain and fodder production, and operates one of the largest land banks in Ukraine. As of the 12 months ended September 2014, the company's dollar-denominated total revenue and adjusted EBITDA amounted to around $1.5 billion and $537 million, respectively.

Ferrexpo Plc, headquartered in Switzerland and incorporated in the UK, is a mid-sized iron ore pellet producer with mining and processing assets located in Ukraine. The group has total Joint Ore Reserves Committee Code (JORC) classified resources of 6.7 billion tonnes, around 1.5 billion tonnes of which are proved and probable reserves. The average grade of Ferrexpo's ore is approximately 31% Fe. In 2014 the group achieved a pellet production of 11 million and generated revenues of $1.39 billion.

AD
AD
AD
AD
AD