The Fitch Ratings international rating agency has assigned the five-year guaranteed notes of Interpipe Holdings plc for $300 million, issued at the rate of 8.375% per annum, the final priority unsecured rating ‘B’ with the asset recovery rating ‘RR4.’
“The noteholders benefit from guarantees from Interpipe’s major subsidiaries representing at least 80% of the group’s consolidated EBITDA. The notes’ documentation contains an incurrence net debt-to-EBITDA covenant of 2.0x and restricted payments clauses that cap shareholder distributions,” the agency said on Wednesday.
Interpipe announced the pricing of guaranteed notes on the evening of May 6, the settlement of the deal and the issue of notes are scheduled for May 13. There is a possibility of early redemption in two years at the price “face value + 50% of the coupon rate,” at the price “face value + 25% of the rate” in three years and at face value in four years. Half of the funds raised are planned to be used for general corporate purposes, the remaining 50% of the proceeds can be used to pay special dividends to shareholders. Listing of securities, interest on which will be paid every six months, is scheduled in Luxembourg.
Fitch said that bonds make up the majority of Interpipe’s capital structure beyond 2020. They have priority over the subordinated loan of the group’s shareholders, which amounted to $47 million at the end of 2020. According to the statement, the volume of Interpipe’s debt after the bond issue will increase from $300 to $350 million, including $45 million in bilateral guaranteed debt to banks with repayment after 2023 has a higher priority than bonds.
The agency said that Interpipe’s long-term issuer default rating (IDR) at ‘B’ takes into account the smaller size of the group compared to peers, the risks of operating conditions in Ukraine and the global oil and gas markets, as well as changing financial policies. Interpipe is also forced to expand the geographic diversification of sales of its wheels after Russia imposed a ban on their imports, the agency said.
At the same time, Fitch said that these shortcomings are balanced by a high share of value-added steel products (pipes and railroad products) and Interpipe’s leading position in the internal and regional markets for seamless pipes and wheels. Among other advantages, the agency names the use of scrap as a raw material at competitive prices, as well as the geographical diversification of sales.
Due to the ban on imports of Ukrainian railroad wheels in Russia in February 2021, Fitch has lowered the mid-term EBITDA estimate in this segment to $50 or $60 million from $80 million and expects their sales to decrease from 193,000 tonnes in 2020 to 150,000 or 160,000 tonnes. At the same time, according to the agency’s estimates, deliveries to non-CIS countries will grow to 90,000 or 100,000 tonnes in the next three to four years, compared to 77,000 tonnes in 2020.
With regard to oil and gas pipes, Fitch said that sales were more than halved in 2020 due to the global downturn in the oil and gas industry, and forecasts a full recovery no earlier than 2022, mainly driven by the Middle East and CIS markets. In contrast, seamless line pipe sales rose moderately in 2020 and are expected to remain flat in 2021-2022, the agency said.
“Recovery in volumes and prices driven by capex initiatives in the pipe segment should hasten the segment’s EBITDA growth towards $80 million to $90 million, exceeding the $35 million to $50 million pre-pandemic,” Fitch said. Overall, it predicts an increase in pipe production to 675,000 tonnes by 2024 from about 485,000 tonnes in 2020.
The agency estimates that Interpipe’s revised capital expenditures will peak at $80 or $90 million in 2021-2022 through a number of initiatives, including new pipe heat treatment equipment, a modernization of a pipe mill and a new oil and gas casing pipe finishing line, and an expansion of wheel processing and painting and wheelset assembly facilities.
