Fitch Upgrades MMK to 'BBB-'; Outlook Stable
In its press-release Fitch notes that the rating upgrade reflects MMK's substantial deleveraging and Fitch's view that the company's financial profile will remain conservative, with projected leverage comfortably within the new rating guidance over the rating horizon. The deleveraging was supported by the company's strong performance and by the proceeds from the sale of its stake in the Fortescue Metals Group (FMG) in 2016. Fitch also mentions that MMK does not currently have any material investment projects and assumes annual capex of around USD600 million, comprising mainly maintenance and operational efficiency projects.
According to Fitch MMK's rating also reflects its strong position in the Russian market (70%-75% of sales), as a supplier of a wide range of high value-added steel products. Fitch expects a soft rebound in Russian steel demand in the mid-term, with growth of 1.5%-2% pa, which should also support the company's ability to maintain its credit profile.
Under base case Fitch forecasts annual MMK’s dividend payments to be around USD350-400 million, after the company raised its dividend payout to at least 50% of free cash flow (from 30% previously). Fitch-adjusted FCF after dividend payment is expected to be around USD200-300 million, which should support further debt repayments and increased liquidity.
Fitch assessed MMK’s operational profile as strong. Company’s product mix includes a large portion of high value-added products (47% of total sales) and MMK also benefits from its significant presence and market share in industrial regions of Russia, such as Central, Volga, Ural and Siberia.
Fitch also regards corporate governance at MMK as above average compared with its Russian peer group.
Notes for editors:
MMK is one of the world's largest steel producers and a leading Russian metals company. The company's operations in Russia include a large steel-producing complex encompassing the entire production chain, from the preparation of iron ore to downstream processing of rolled steel. MMK turns out a broad range of steel products with a predominant share of high-value-added products. In 2016, the company produced 12.5 million tonnes of crude steel and 11.6 million tonnes of commercial steel products. MMK Group had sales in 2016 of USD 5,630 million and EBITDA of USD 1,956 million.
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