Metinvest Group Continues to Expand Internationally
There are retail companies—Apple, Samsung, Nike, Nestlé—that are synonymous with the global economy, well-known not only to investors but to the wider public as well. Part of their brand, their success, is regularly making it into the headlines.
But a vast number of companies—whose operations are crucial to the modern global economy as they manage vast and diversified operations across continents—operate in relative obscurity. Which is usually for the best.
As the recent drama of The Ever Given (the container ship that blocked the Suez Canal) made plain, companies like Shoei Kisen Kaisha (the ship’s owner) and the Evergreen Marine Corporation (its operator) prefer to do the vital work of the modern economy in the background, away from the spotlight.
Metinvest is just such a company, one that—with little fanfare—delivers the materials necessary to build and operate the world’s economic infrastructure. Vertically integrated (thus its moniker “The Group”), its supply chain starts with mining operations in Ukraine and the United States; runs through advanced metallurgy facilities in Ukraine, Italy, Bulgaria, and the United Kingdom; and ends with sales around the entire globe.
Metinvest provides just such high-quality industrial materials to manufacturers, with which they craft the structures that the global economy depends on. Its production chain begins with extracting iron ore and coal before incorporating the manufacture of a wide range of semi-finished and finished steel products, from marine to pipe making to general construction.
A Company Rises From the East
Metinvest, one of the most significant steel operations in all of Europe, was created in 2006 by System Capital Management Limited (SCM), the financial and industrial conglomerate founded in 2000. SCM is a sprawling holding company that, along with Metinvest, also includes the energy sector company DTEK, the Media Group Ukraine, and the Vega Telecommunications Group. Most of SCM’s holdings are in Ukraine, though it also controls holdings in the European Union and North America.
Once Metinvest was founded as an appendage of SCM to oversee its coal mining, coking, steelmaking, and pipe manufacturing businesses, it quickly began to acquire assets. This included gaining complete control of Leman Ukraine (a wholesale metal trading company), a 27 percent stake in Yenakiieve Steel, and an 82.5 percent stake in the mining company Ingulets GOK. In 2008 acquisitions outside of Ukraine began, including the Italian steel-products broker Trametal, the British steel manufacturer Spartan UK, and the US coal producer United Coal.
Other highlights of the company’s early history include: becoming the first Ukrainian company to not only join the World Steel Association (worldsteel), but then to go on and earn the organization’s Climate Action Certificate; issuing reports in accordance with the Global Reporting Initiative Sustainability Reporting Guidelines; and joining the United Nations Global Compact initiative.
Such growth and rapid accumulation of assets were fueled by a $1.5 billion syndicated loan, at the time the largest that a private international company had ever swung, that was used to refinance debt and fund investments in 2007. The ability of Metinvest to gain access to capital on competitive terms has been one of the company’s primary strengths since its founding, especially its subsequent 2018 refinancing of debt obligations that totaled $2.3 billion. This deal was named the Emerging EMEA bond of the year by International Financing Review magazine and TXF named it the European Commodities Finance Deal of the Year.
“The Group did not set the goal of refinancing simply for the sake of refinancing. We were interested in extending the maturity of the debt portfolio; reducing the overall cost of financing; diversifying the base of creditors and investors; and simplifying and, to a certain extent, unifying debt instruments—bonds and syndicated loans,” explained Metinvest’s Director of Corporate Finance and Treasury Alexander Lyubarev in a 2019 interview with Metal Expert. “Our main creditor banks for the syndicated loan are Deutsche Bank, ING, Natixis, and UniCredit, with whom we have strong long-term partnerships. At the same time, hundreds of international asset management funds, pension funds and hedge funds with various interests invest in our bonds. The refinancing consisted of three simultaneous transactions: a tender for the buyback of the bonds maturing in 2021, along with the modification of their conditions; the issuance of new Eurobonds; and a new version of the pre-export financing facility agreement. If any one of these transactions had not succeeded, nothing would have worked. Most importantly, the transaction is driven completely by market conditions.”
In a similar fashion, at the conclusion of 2020, Metinvest was able to work with Finacity—headquartered in the United States—to launch a €75 million receivables securitization program for two re-rolling steel mills in Italy that are under the Metinvest umbrella.
“This landmark deal is part of our broader strategy to expand our customer base and provide additional, flexible solutions for financing sales in Europe,” Metinvest’s Chief Executive Officer Yuriy Ryzhenkov said when announcing the deal. “Securitization also makes it possible to engage with new financial institutions that are eager to participate in the deal and provide additional liquidity to the Group.”
Gaining the confidence of the international finance sector has been a crucial tool in Metinvest’s rise.
A Steady Hand on the Tiller
Since 2013, Ryzhenkov has overseen the company’s growth—not only through the ups and downs of the steel sector, but the significant political upheavals that have marked Ukraine since it declared its independence from the Soviet Union in 1991.
“It was an interesting period for the company, the country and the industry as a whole. It did look like the perfect storm for Metinvest at the time because there was a downturn in the steel markets, and at the same time there was an economic and financial crisis, and in Ukraine you had a war going on in the territories where many of our assets are located,” Ryzhenkov reminisced about the beginnings of his tenure at Metinvest in an interview with The Report Company in January 2020. “So, the first thing that was required at the time was to get the team united behind a single vision of what we wanted to do and how to get through this. Metinvest has a great team of people, each of them is strong in their own way, but at times strong people are not aligned in the same direction, so the main thing was to adopt a common focus.”
By the time Ryzhenkov took over, Metinvest had become a sprawling organization with assets in places as diverse as the United States, the United Kingdom, Italy, Romania, Belarus, Bulgaria, Russia, Tunisia, and the United Arab Emirates.
“To retain positions in the international market and remain competitive, we must constantly improve quality and expand our product line while reducing costs. We must also focus on our work with clients by improving our services and opening new metal service centers abroad to be closer to our buyers,” Ryzhenkov explained in a 2019 interview with the GMK Center (a Ukrainian mining and metals sector think tank). “From year to year, our team proves its effectiveness and copes with all challenges. We have completely rebuilt our logistic flows after the transport blockade in the east of Ukraine. We have diversified raw material supplies to our plants, so as not to depend on one or two markets. We continue looking for new raw materials and sales markets, and many of these attempts are successful. We are also implementing a large-scale modernization of our production facilities.”
Building an Internal Infrastructure
All of this fits into Metinvest’s management principles, which balance centralized management of assets with a commitment to meet global best practices with a well-trained, professional workforce. Mining and steelmaking are industries with rich—even forbidding—histories that are rapidly being transformed under the pressure of global competition and the need to make them greener.
“It is impossible to modernize production without qualified staff. Unfortunately, Ukraine in general—and Metinvest in particular—are currently experiencing an acute shortage of highly qualified workers. There are two major reasons for this: labor migration and significant worsening of the quality of education and training,” Ryzhenkov explained in his talk with the GMK Center. “Over the past two years, we have brought the wages for our personnel closer to the average levels for Eastern Europe. Our task is to create competitive and attractive working conditions, and to offer our workers incentives for internal career and professional growth. Second, we have increased the amount of investment to repair workplaces and infrastructure at production sites several-fold to make work safer and more comfortable.”
The keystone of these modernization efforts is Metinvest Polytechnic, which opened in June of 2020. The college offers programs in metallurgy, chemistry, computer science, automation, environmental studies, engineering, occupational safety, and mining operations that are an investment in the human resources that are vital to Metinvest’s future.
"An important step [in education and training] is the introduction of programs popularizing the industry and industrial jobs among young people. We have already signed contracts with the leading Ukrainian higher educational institutions to develop curricula and introduce a dual-track education system to meet the needs of Metinvest,” Ryzhenkov outlined to the GMK Center a year before Metinvest Polytechnic opened. “In the near term, we are planning to set up our own corporate polytechnic university and develop vocational training programs to meet the needs of the whole country.”
A Local, Yet Global, Business Concern
Even though Metinvest is an international organization, it is a company very much rooted in Ukraine—both culturally and geologically.
“In the steel industry there is only one competitive advantage that you cannot copy, and that is geography. Your location is very important, you have to be very close to the natural resources, or else you have to be very close to the customer. Or you have to link the two,” Ryzhenkov explained to The Report Company. “Our company is a link between the resources, which are mainly located in eastern Ukraine, and our customers who are mainly located in southern and eastern Europe. Our key markets are the Mediterranean, Black Sea and Gulf regions—Italy, France, the Balkans, Bulgaria, Romania, northern Africa, and Turkey.”
This concept of acting as a “link” between the natural resources and processed materials on which modern industry is built is the core of Metinvest’s brand. The company is active in all aspects of the industrial production supply chain—mining, metallurgy, sales, logistics and procurement, and service and engineering.
Its mining interests are primarily in Ukraine and spread between three operations. Ingulets GOK produces iron ore concentrate from mining a ferruginous quartzite deposit, Northern GOK manufactures feedstock for the iron and steel industry from two open-pit mines, and Central GOK outputs iron ore concentrate from both opencast and underground mines. Since being acquired in 2009, United Coal Company has added to Metinvest’s mining production in the form of coking and steam coal from the US Central Appalachian region. As a player in the US industry, United Coal was one of four co founders of the Metallurgical Coal Producers Association in 2020.
Metinvest’s metallurgy facilities are numerous, ranging from the Azovstal Iron and Steel Works and Ilyich Steel in Ukraine to Bulgaria’s Promet Steel, Britain’s Spartan UK, and Italy’s Ferriera Valsider S.P.A. and Metinvest Trametal. These foundries produce steel and iron products.
With a sales team working out of over 40 offices worldwide—anchored by their primary headquarters in Ukraine and Switzerland—Metinvest is deeply embedded in the global steel market through its agents Metinvest International, Metinvest Eurasia, and Metinvest-SMC.
Providing the distribution and support services for Metinvest’s wide-ranging operations are its logistics and procurement and service and engineering departments. The former oversees the transport of products around the world and the latter is a team of industry specialists who ensure that Metinvest’s products remain in the vanguard of what the industry can produce.
“Metinvest is a vertically integrated company that is self-sufficient in iron ore, as well as substantially sufficient in coke and coal supplies, which allows us to be more agile in changing markets. And the steel industry is always a changing market,” Ryzhenkov mused during his interview with The Report Company.
“Dividing this production chain into semi-finished goods in Ukraine and finished goods in target markets in Europe, we are able to provide speed in customer services and adjust to customer requirements, and for many customers that is a key property. Our key customers in those regions are shipbuilders and large construction companies. When we do a project for them, the main thing is a timely delivery, and the fact that we can quickly adjust to last-minute changes.”
One area Metinvest’s engineers are highly focused on is meeting the challenges of climate change and the environmental degradation wrought by an industry that is notoriously, well, dirty. Much of the curriculum of the Metinvest Polytechnic is geared to not only training industry workers, but also reworking the environmental footprint of the industry as a whole.
“Since its establishment, Metinvest has been using mechanisms of the Kyoto Protocol. Our steel and coking plants apply technologies to produce heat and electricity from waste gases. All our plants implement energy efficiency projects. Metinvest’s Technological Strategy 2030 seeks to improve the environmental footprint of our plants as much as possible, including greenhouse gas emissions, by introducing modern technologies and closing obsolete or inefficient facilities,” Ryzhenkov highlighted in his GMK Center interview. “As a member of the World Steel Association, Metinvest takes part in research to identify priority measures and technologies to reduce greenhouse gas emissions by 2050.
Environmental issues are important to any company. Metinvest’s technological strategy seeks to improve the environmental footprint of our plants and gradually introduce European working standards. Furthermore, we have action plans that have been approved by the local communities. We intend to progress in all directions, so as to make our plants as environmentally friendly as possible by introducing modern technologies.”
As the leadership of Metinvest stresses, the steel industry is perpetually changing under the pressure of market forces and geographic—and geopolitical—realities. Being agile, adept, and eager to meet new challenges is a hallmark of one of the sector’s leaders, the Metinvest Group.
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