Financing and liquidity
EVRAZ began 2019 with total debt of US$4,638 million. By the end of the year, the Group had completed several transactions to extend its maturity profile and build up a liquidity cushion in view of coming maturities through 2021.
In March, EVRAZ completed an issuer substitution, a capital markets transaction intended to substitute EVRAZ plc in place of Evraz Group S.A. as the issuer of the outstanding Eurobonds in accordance with their terms. Upon substitution, three major international rating agencies assigned EVRAZ plc and its notes credit ratings in line with those of Evraz Group S.A. prior to the transaction.
In April, EVRAZ plc issued a US$700 million Eurobond due in 2024 with a semi-annual coupon of 5.25%. The proceeds were used to fund the tender offer for the Eurobonds due in 2020 that was completed in April and the make whole call for the residual outstanding balance of these notes that was completed in May. As a result of these transactions, EVRAZ effectively shifted 2020 maturities to 2024.
In April, EVRAZ repaid US$50 million in loans from Sberbank due in 2019.
In June, the Group repaid RUB15,000 million of 12.95% rouble bonds due in 2019 and respective cross-currency swaps, which economically hedged the Group’s exposure to currency risk.
In August, EvrazHolding Finance LLC, a finance subsidiary of the Group, issued RUB20,000 million (around US$317 million at the exchange rate on the transaction date) in five-year, exchange-traded bonds due in 2024 with a 7.95% coupon payable semi-annually. To manage the currency exposure on the rouble-denominated bonds, the Group was able to economically hedge these transactions using cross-currency interest rate swaps, effectively converting the liability exposure to US dollars.
In October and November, EVRAZ raised two term loans of US$85 million and US$265 million from Sberbank, both due in 2025. Part of the proceeds were used to refinance an existing US$85 million loan from Alfa Bank.
Further, in November, EVRAZ obtained a new loan from Alfa Bank of US$535 million due in 2025. The Group used some of the proceeds from this borrowing to refinance an existing US$300 million loan from the same bank with maturity in 2023.
At 1 January 2019, as a result of the application of a new accounting standard, the Group recognised US$118 million of lease liabilities, which at recognition increased total debt of the Group. Under the previous accounting standard, these contracts were accounted for as operating leases and were not recognised as either assets or liabilities in the Group’s Statement of Financial Position.
These transactions and accounting change, together with several less significant borrowings, resulted in an increase of total debt in 2019 by US$230 million to US$4,868 million.
During the reporting period, EVRAZ paid an interim dividend to its shareholders in the amount of US$577 million (US$0.40 per share) in H1 2019 and an interim dividend in the amount of US$508 million (US$0.35 per share) in H2 2019.
Despite the increase in total debt, net debt decreased in 2019 by US$126 million to US$3,445 million, compared with US$3,571 million as at 31 December 2018.
Interest expense accrued in respect of loans, bonds and notes amounted to US$231 million in the period, compared with US$248 million in 2018. The lower interest expense was mainly due to the management’s efforts to refinance existing indebtedness at more favourable terms amid a strong performance of the debt markets.
The reduction of EBITDA in 2019 resulted in a slight increase of the Group’s major leverage metric, the ratio of net debt to EBITDA, which was 1.3 times as at 31 December 2019, compared with 0.9 times as at 31 December 2018.
As at 31 December 2019, debt with financial maintenance covenants comprised various bilateral facilities with a total outstanding principal of around US$1,191 million. Maintenance covenants under these facilities include two key ratios calculated using EVRAZ plc’s consolidated financials: a maximum net leverage and a minimum EBITDA interest cover.
As at 31 December 2019, EVRAZ was in full compliance with its financial covenants.
As at 31 December 2019, cash amounted to US$1,423 million, while short-term loans and the current portion of long-term loans stood at US$140 million. Total scheduled debt maturities during 2020 do not exceed US$52 million. The first sizeable maturities are due in Q1 2021 and are comfortably covered by cash balances.