Fitch says the successful completion of Ferrexpo’s 2016 bond exchange offer has lengthened the Ukrainian iron ore pellet producer’s debt maturity profile and improved liquidity over 2015-2016. However, the company's ultimate liquidity position remains subject to iron ore prices, pellet premiums and the rate of domestic inflation in Ukraine.

The offer completion has prompted Fitch to issue Ferrexpo a Long-term Issuer Default Rating (IDR) of CCC with a stable outlook. Under the offer, the $286 million 2016 notes were exchanged for $100m cash and $186m new 10.375% 2019 guaranteed amortising bonds. The notes will also include a limitation on liens, restrictions on dividends, and limitations on additional indebtedness.

“We expect $400m to be repaid in 2015 and $195m in 2016, leaving the company's cash balance at nearly $200m at end-2016 under Fitch's $50/tonne iron ore price deck,” the credit rating agency says in a report sent to Kallanish. “Under certain scenarios, there is uncertainty about the company's capacity to meet its scheduled pre-export financing payments post 2016.”

Fitch’s expected average iron ore price of $50/t in 2015 and 2016 – versus the recorded $97/t in 2014 – will negatively impact Ferrexpo’s earnings and credit metrics. As a pellet producer, though, the miner will continue to benefit from a quality premium over the benchmark 62% iron ore price, which has widened over the past six months.

In the first half of 2015, Ferrexpo’s pellet production grew 8.3% on-year to 5.81 million tonnes. The firm supplies steelworks in Austria, China, Japan, Germany as well as other European and Asian countries. It plans to produce 12 million tonnes/year of 65% Fe pellets by 2016 after completing a $2 billion modernisation and expansion programme.