Page 61 - UKRRptFeb21

It is unclear whether the Pokrovske coal business, as defined by Metinvest, includes PrJSC Donetsksteel, which was not among the companies mentioned by the AMCU in its October decision.
Pokrovske Coal was a guarantor for several loans to Donetsksteel, the total amount of, which (including interest accrued but unpaid) at the end of 2019 was about $1.3bn, according to Concorde Capital's analysis.
East West United Bank S.A. of Luxembourg (EWUB), which in 2019 accused Donetsksteel of unfair treatment of creditors, mentioned Itineris Holdings as a creditor to Donetsksteel under the same $500mn loan agreement under, which EWUB was a creditor, according to a Concorde Capital analysis of Ukrainian court documents.
Barlenco is affiliated with Metinvest.
Dmytro Khoroshun said in a note: “This event is neutral for Metinvest because an increase in future payments – agreed to by Donetsksteel – to $1.34bn, close to its end-2019 obligations, was likely.
We emphasize that Donetsksteel will likely continue to deprive Pokrovske Coal (and Metinvest, if it increases its stake in the coal miner from 24.99% to close to 100%) of profits that Pokrovske Coal could earn by enriching its raw coal itself at its subsidiary Svyato-Varvarynska.
Namely, Donetsksteel’s only current business is enriching (at Svyato-Varvarynska, via a tolling agreement) the raw coking coal mined by Pokrovske Coal. Indeed, the revenue from coking coal concentrate sales was 99.95% of Donetsksteel’s total revenue in 2019 (98% in 2018). It is likely that this business will be the only source of funding for Donetsksteel’s entire $1.34bn future payments to its creditors.
Notably, Donetsksteel for several years has already been earning massive profits from its position as a coal enrichment intermediary. For example, in 2019 its EBITDA amounted to 133mn (2018: $178mn), while we estimate Pokrovske Coal’s EBITDA was $120mn in 2019 (2018: $48mn). In both 2018 and 2019, Svyato-Varvarynska’s EBITDA was less than $1mn, according to our analysis.
If Metinvest consolidates control over Pokrovske Coal but not Donetsksteel, such as by exercising its option, Metinvest’s debt might rise by $0.5bn because the coal miner agreed in October to pay this sum to Donetsksteel’s creditors. By exercising its option, Metinvest will have to pay $0.5-0.6bn to its co-investors for corporate rights in the Pokrovske coal business. Furthermore, as said above, Pokrovske Coal might need to continue allowing, for no known formal reason, Donetsksteel to earn large profits by enriching the raw coal Pokrovske Coal mines and by using Svyato-Varvarynska’s enriching services at cost.
If Metinvest consolidates control over both Pokrovske Coal and Donetsksteel in the near future, its debt would rise by $1.34bn, but we consider this less likely. One reason is that Pokrovske Coal and Donetsksteel are clearly different in their net obligations arising from the approved settlement deed (zero for the former, the entire $1.34bn for the latter). Such an arrangement seems tailored not to overburden with debt (save for the $0.5bn in gross
61​ UKRAINE Country Report​ February 2021 ​ ​www.intellinews.com