Moody’s affirms MMK Ba3 rating
The outlook on the ratings is stable. This concludes the review for downgrade initiated by Moody's on 23 December 2014 when MMK’s ratings were put on review in a combined decision to place a number of Russian non-financial corporates on review for downgrade, reflecting the severe and rapid deterioration in the operating environment in Russia and the heightened risk of a more prolonged and acute economic downturn than originally anticipated.
Moody’s notes in its press release that MMK's competitive cost profile as evidenced by slab cash costs falling to $243/tonne in Q4 2014 down from $308/tonne in Q3 2014 will remain strong on the back of falling iron ore prices, better raw materials structure and the 42% ruble devaluation in 2014.
According to Moody’s, this cost improvement, combined with MMK’s adequate liquidity profile, higher year-on-year share of export deliveries and deleveraging achieved in 2014, contributed to strong financial results in 2014 and created headroom in the company’s Ba3 rating category. This additional headroom will allow the company to comfortably weather 2015.
Moody’s expects that Russian market will remain key for the company in 2015, despite increasing its share of export sales in 2014 and substantially improving its competitive position in the international markets due to the ruble devaluation. MMK’s continued focus on Russia despite recent local currency volatility reflects (1) the growing attractiveness of domestic sales owing to ruble price hikes of 15%-40%, in the domestic market since November 2014; (2) the strengthening of the ruble exchange rate in March 2015; and (3) the challenging situation in the international steel markets with European hot rolled coil prices falling by about 20%-25% in 2014, which reduces the attractiveness of export deliveries.
MMK's Ba3 CFR reflects its (1) profile as a low-cost integrated steelmaker; (2) limited integration into mining operations; (3) strong Russian market share for `high-end' flat steel.
MMK's liquidity as of 31 December 2014, according to Moody’s assessment, is adequate, given the company's cash on hand and deposits of $549 million, liquid financial investments of about $0.3 billion and approximately $1.1 billion of availability under credit facilities.
In 2014 positive free cash flows of $0.8 billion and ruble devaluation enabled the company to reduce its reported net debt by approximately $1.0 billion to about $2.0 billion as of 31 December 2014.
The stable rating outlook reflects MMK's efficient operations, supported by (1) the aforementioned ruble devaluation; (2) the low level of integration into iron ore, the prices for which reached 10-year lows by April 2015 falling to below $50/tonne; (3) the company's favourable product mix and diversified sale; and (4) substantial deleveraging achieved during 2014, which will allow the company to comfortably withstand the increased risks of demand weakening in the domestic end-user sectors in 2015, Moody’s concludes.
MMK is among the world's largest steel producers and is one of the leaders of Russia's steel industry. The company's operations in Russia include a large steel producing complex encompassing the entire production chain, from preparation of iron ore to downstream processing of rolled steel. MMK turns out a broad range of steel products with a predominant share of higher value added products. In 2014 MMK Group produced 13 mln tons of crude steel and 12.2 mln tons of commercial steel products. The MMK Group's revenue in 2014 totalled USD 7.952 bln, with EBITDA at USD 1.607 bln.
Investor Relations Department:
Andrey Serov, Head of IR
tel.: +7 (3519) 24-52-97
MMK Communications Department
Dmitry Kuchumov, Sergei Vykhukholev
Tel: +7 (499) 238-26-13