Metinvest and Ferrexpo will maintain liquidity in 2023 — Moody’s

Three large Ukrainian companies – steel and mining group Metinvest, iron ore company Ferrexpo and agricultural holding MHP – will be able to maintain the liquidity they had in 2022 despite the war. Moody’s Investors Service analysts give this forecast.

According to the review, in 2023 they will be able to generate close to break-even or positive cash flow, which will allow maintaining sufficient liquidity until the end of the current year. The forecast is based on the fact that the companies had a strong balance sheet at the time of the invasion of the Russian Federation and were able to preserve working capital.

As Moody’s analysts noted, Metinvest, Ferrexpo and MHP experienced a significant drop in EBITDA (earnings before interest, taxes, depreciation and amortization) after the invasion of the Russian Federation in February 2022. To mitigate this reduction, Metinvest and Ferrexpo have significantly reduced their capital expenditures and will cut dividends.

According to Moody’s, the cash balances of Ferrexpo as of December 31, 2022, were $106 million, Metinvest – at least $460 million as of October 28, 2022, and MHP – $317 million as of September 30, 2022.

The deterioration of the financial results of the companies is primarily caused by the consequences of the Russian invasion. In particular, Metinvest lost operational control over its Azovstal steel mill and Ilyich Iron and Steel Works in Mariupol and stopped production at the Avdiivka Coke Chemical Plant – the enterprise is mothballed. The fourth quarter of 2022 was particularly difficult for companies due to an acute shortage of electricity, which led to a temporary suspension of production activities.

Moody’s also noted that although Ferrexpo’s assets in the central part of Ukraine are not located in the territory directly affected by the hostilities, the iron ore company, as well as the Metinvest Group, were also affected by the Russian naval blockade of the Black Sea ports. This led to a decrease in the volume of production and supply of products.

Analysts predict a further decline in the EBITDA of the three companies in 2023. Moody’s expects that Ferrexpo and Metinvest will be able to maintain sufficient liquidity after 2023. At the same time, the MHP agricultural holding, according to their estimates, does not have enough working capital to repay bond payments in the amount of $500 million in May 2024. According to the basic scenario of the experts, the agricultural company will probably try to extend the repayment period.

While the war continues, Moody’s notes, significant risks affecting the creditworthiness of the three companies remain. The biggest of them are further attacks on critical infrastructure facilities or further escalation of hostilities. Analysts also do not predict that Ukrainian non-grain exporters’ access to Black Sea ports will improve in the short term. This will continue to put pressure on the Ukrainian railway infrastructure, limiting the export flow.

As GMK Center reported earlier, Metinvest Group plans to gradually increase the capacity of mining and processing plants to at least 30% of the pre-war level and focus mainly on the production of iron ore pellets. The company has already resumed the operation of the Northern and Ingulets mining and processing plants (GOKs), which had been idle since July 2022. It is noted that the plants were commissioned at the end of last year. Thus, all four GOKs, in particular the Central and Southern, are working and producing products.