The leading global ratings agency Fitch Ratings has affirmed the long-term foreign currency issuer default rating (IDR) of the Ukrainian mining and steel producing company Metinvest Holding (Metinvest) at ‘B' with negative outlook, and has affirmed its long-term local currency IDR at ‘B+' with a stable outlook. Accordingly, the rating is constrained by Ukraine's country ceiling of ‘B'.
"The ratings reflect Metinvest's scale as the largest Ukrainian metals and mining company with significant domestic and global market shares," Fitch says in its statement. The company holds a 12 percent share in the international slabs market, a nine percent share in the international strips market and a 25 percent share in the Ukrainian domestic steel products market. In addition, Metinvest is close to raw material sources and Black Sea ports, and it is self-sufficient in iron ore and coking coal. The company's exports amount to over 80 percent of its sales, with almost 70-80 percent of its costs being denominated in the Ukrainian national currency, i.e. hryvna (UAH). Fitch notes that since September 2008, Metinvest has benefited from an almost 50 percent devaluation of the UAH, enabling it to remain profitable even at lower export prices.
On the other hand, Fitch states that its rating constraints include Metinvest's historically lower expenditure on plant modernization, which over the past three years has been lower than that of its CIS peers and has made its steel operations less efficient. In addition, the company's governance practices and disclosure framework still fall below international standards, says the agency.
Given the scenario where market conditions remain weak through the rest of 2009 and Metinvest's focus on commodity steel products, in FY 2009 Fitch would expect the company's production volumes to decline by 30-40 percent year on year, its revenue to decline by about 60-70 percent year on year, and its EBITDAR to go down by 70-80 percent year on year.
Nevertheless, Fitch notes that Metinvest is exposed to risks inherent in Ukraine's economy, financial sector and political situation.
In the first half of 2009, Metinvest sold 816,000 mt of slabs, including 507,000 mt to Far East and Southeast Asian markets, 705,000 mt of billets, of which 56 percent were delivered to Persian Gulf and Middle East countries, and 314,000 mt of large diameter pipes, says Metinvest in its statement.