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Rating Action:

Moody's upgrades ratings of three issuers in Ukraine to Caa1 following sovereign rating action

29 Aug 2017

NOTE: On March 21, 2018, the press release was corrected as follows: at the end of the press release, the Moody’s entity for the first contact was changed to Moody's Investors Service Limited, Russian Branch. Revised release follows.

London, 29 August 2017 -- Moody's Investors Service (Moody's) has today upgraded to Caa1 from Caa2 the corporate family ratings (CFRs) and to Caa1-PD from Caa2-PD the probability of default ratings (PDRs) of three companies operating in Ukraine: Ferrexpo Plc, Metinvest B.V. and MHP SE. Concurrently, Moody's has upgraded the national scale corporate family ratings (NSRs) of Metinvest and MHP to Baa3.ua from B1.ua and the senior unsecured ratings of notes issued by Ferrexpo Finance plc to Caa1 from Caa2. The outlook on the ratings of Metinvest and MHP has been changed to positive from stable. The outlook on the ratings of Ferrexpo Plc and Ferrexpo Finance plc remains stable.

Today's rating action follows Moody's upgrade of Ukraine's government bond rating to Caa2 from Caa3, with a positive outlook, and raising of the foreign-currency bond country ceiling to Caa1 from Caa2 on 25 August 2017. For additional information on the sovereign rating action, please refer to the related announcement: https://www.moodys.com/research/--PR_370205

RATINGS RATIONALE

Today's rating action primarily reflects the upgrade of Ukraine's government bond rating to Caa2 from Caa3 and raising of the foreign-currency bond country ceiling, which remains the key constraint for the companies' ratings, to Caa1 from Caa2.

The upgrade of Ukraine's government bond rating is based on the following key drivers: (1) the cumulative impact of structural public finance and anti-corruption reforms that, if sustained, will improve government debt dynamics absent a large depreciation of the hryvnia; and (2) a strengthened external position and likely market access sufficient to reduce the risk of default and loss given default.

The business profile and financial metrics of Metinvest and MHP are strong for a Caa1 rating. However, the companies are directly exposed to Ukraine's political, legal, fiscal and regulatory environment, despite significant share of export revenues, given that most or all of their assets are located within the country.

The same applies to Ferrexpo as the business profile and financial profile are strong for a Caa1 rating, while all of its assets are located in Ukraine. However, Ferrexpo faces material refinancing risk for its debt maturities in 2018 and 2019 of $298 million (out of which $173 million matures in April 2018) and $187 million respectively, assuming an iron ore price of $50/tonne. The upgrade of Ferrexpo's ratings with stable outlook assumes the company will likely be able to successfully address this risk given its strong financial profile. Moody's understands that the company is currently in discussion with the banks.

RATIONALE FOR FERREXPO'S STABLE OUTLOOK

The stable outlook reflects our expectation that Ferrexpo will sustain strong operating and financial performance for its current rating level despite high event risks. The outlook also reflects its refinancing risk for the 2018-19 debt maturities, which we believe the company will likely be able to address. Once the refinancing risk is resolved, a positive outlook can be considered.

RATIONALE FOR POSITIVE OUTLOOK FOR METINVEST AND MHP

The positive outlook on the ratings of Metinvest and MHP is in line with the positive outlook on Ukraine's sovereign rating, and reflects the fact that the companies' ratings could be upgraded if Moody's were to upgrade the sovereign rating and raise Ukraine's foreign-currency bond country ceiling.

The positive outlook also reflects our expectation that these companies will sustain strong operating and financial performance for their current rating level despite high event risks, and maintain adequate liquidity.

WHAT COULD CHANGE FERREXPO'S RATINGS UP/DOWN

Ferrexpo's ratings are not currently constrained by the foreign-currency bond country ceiling. An upgrade would require the company to resolve its refinancing risk for the debt maturities in 2018 and 2019. Once the refinancing risk is resolved, the ratings could become constrained by the country ceiling and we could upgrade the rating if we were to upgrade Ukraine's sovereign rating and/or raise the foreign-currency bond country ceiling, provided there is no material deterioration in the company-specific factors, including its operating and financial performance, market position and liquidity.

We could downgrade the rating if we were to downgrade Ukraine's sovereign rating and/or lower the foreign-currency bond country ceiling, or the company's operating and financial performance or market position were to deteriorate materially. A downgrade could also take place if Ferrexpo's liquidity position weakens and the refinancing risk for the 2018-19 debt maturities is not addressed in time.

WHAT COULD CHANGE METINVEST AND MHP's RATINGS UP/DOWN

Moody's could upgrade the ratings of Metinvest and MHP if it were to upgrade Ukraine's sovereign rating and/or raise the foreign-currency bond country ceiling, provided there is no material deterioration in the company-specific factors, including their operating and financial performance, market position and liquidity.

Moody's could downgrade the ratings if it were to downgrade Ukraine's sovereign rating and/or lower the foreign-currency bond country ceiling, or the companies' operating and financial performance, market position or liquidity were to deteriorate materially.

PRINCIPAL METHODOLOGIES

The principal methodology used in rating MHP SE was Global Protein and Agriculture Industry published in June 2017.

The principal methodology used in rating Ferrexpo Plc and Ferrexpo Finance plc was Global Mining Industry published in August 2014.

The principal methodology used in rating Metinvest B.V. was Global Steel Industry published in October 2012.

Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1060333.

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 1.4 billion tonnes of which are proved and probable reserves. The average grade of Ferrexpo's ore is approximately 31% Fe. In 2016, the group achieved a pellet production of 11.2 million tonnes and generated revenues of $986 million. Ferrexpo is listed on the London Stock Exchange and 50.3% of its shares are held by Fevamotinico S.a.r.l, a Luxembourg based holding company owned by Kostyantin Zhevago, CEO of Ferrexpo Plc. and the remaining is free float.

Metinvest B.V., registered in the Netherlands, is the parent company of a vertically integrated group, Metinvest, which is one of the largest steelmakers and iron ore producers in the Commonwealth of Independent States. The company produces finished flat and long steel products, semi-finished steel products (slabs and billets), pig iron and coke products, iron ore and coking coal concentrate, and iron ore pellets. In 2016, Metinvest reported revenue of $6.2 billion (2015: $6.8 billion) and its Moody's-adjusted EBITDA amounted to $896 million (2015: $377 million). Metinvest's major shareholders are System Capital Management (71.24% share in Metinvest) and SMART group (23.76%).

MHP SE 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. MHP is vertically integrated into grain and fodder production, and operates one of the largest land banks in Ukraine. For the 12 months ended June 2017, the company's total revenue and adjusted EBITDA amounted to around $1.25 billion and $453 million, respectively. MHP's controlling beneficiary shareholder (with a stake of approximately 60%) is Mr. Yuriy Kosyuk, the founder and CEO of the company. MHP has traded on the London Stock Exchange since its May 2008 initial public offering.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

The person who approved MHP SE and Metinvest B.V. credit ratings is Victoria Maisuradze, Associate Managing Director, Corporate Finance Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454.

The person who approved Ferrexpo Plc and Ferrexpo Finance plc credit ratings is Anke Richter, Associate Managing Director, Corporate Finance Group, JOURNALISTS: 44 20 7772 5456, SUBSCRIBERS: 44 20 7772 5454.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Artem Frolov
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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