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Comment of Andrey Solovyev, Global Head of DCM at VTB Capital, for FT Tilt

15 February 2011

Metinvest pioneers debt flexibility for Ukraine

by Alastair Marsh, FT Tilt

Ukraine’s biggest steel producer Metinvest has launched the first Euro Medium-Term Notes (EMTN) programme fr om a corporate issuer in the country, allowing it to frequently and quickly tap international debt markets.

The programme was inaugurated Wednesday with the placement of the largest and longest eurobond ever issued by a Ukrainian corporate - a seven-year $750m deal, with an 8.75 per cent coupon.

In Ukraine, wh ere it can take up to three months to arrange documentation for a public eurobond issue, the flexibility offered from an EMTN programme to issue debt quickly before market conditions turn by using largely pre-prepared documenation is very attractive.

However, few borrowers come to market frequently enough to merit the cost and logistical effort required to set up a programme, said Andrey Solovyev, global head of debt capital markets at VTB Capital, the arranger of Metinvest’s $1bn shelf.

“Ukrainian borrowers do not issue as frequently as Russian ones and to set up an EMTN programme you need to be a frequent borrower because the one-time costs are higher than for a regular Eurobond. However, if you issue just a couple of notes it already makes sense in terms of economies of scale to launch a programme”.

Metinvest can hardly be termed a 'frequent' borrower, having only come to market on one previous occasion with a five-year $500m eurobond in May 2010.

However, other arms of System Capital Management, the financial and industrial holding company controlled by Ukraine’s richest man, Rinat Akhmetov, and also Metinvest’s parent company, have increased their presence in the debt market in recent years. For example, coal and power producer DTEK raised $500m in 2010 from a five-year issue, having been absent from the market for two years.

Metinvest’s programme allows it to issue debt in any currency (so long as it is recognised by settlement service Euroclear) and with any tenor. The company could also potentially issue structured notes, that being debt linked to the performance of one or more underlying assets, such as an exchange rate or equity index, but it is expected to only issue vanilla tickets.

EMTN programmes offer a lot of advantages but they are a rare commodity in Ukraine - even in the financial sector only one issuer (Alfa Bank Ukraine) is believed to have a shelf - and will remain so until debt issuance increases to such a level as to make it economical.

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