MOODY’S UPGRADES MMK’S RATING TO BA2 WITH POSITIVE OUTLOOK
The upgrade of MMK’s ratings primarily reflects the significant improvement in the company’s financial metrics over the past two years, with gross leverage improving to 1.8x Moody’s-adjusted debt/EBITDA at end-2014 and 1.2x as of 30 September 2015, which compares with Moody’s upgrade threshold of below 2.5x. Despite the expected weakening in domestic demand for steel and prices for steel globally and domestically in 2016, Moody’s nevertheless expects MMK’s metrics to remain solid owing to its strong business profile, robust cash flow generation and conservative financial policy.
It is said in the Moody’s statement that MMK pursues a conservative financial policy, which anticipates debt reduction and prudent capex management. Over the first nine months of 2015, the company reduced its debt to below $2.1 billion from nearly $2.6 billion at year-end 2014, owing to continuing positive free cash flow generation. MMK intends to repay rather than refinance the bulk of its 2016 debt maturities, aiming to further reduce its debt to around $1 billion by the end of 2016.
Although Moody’s expects the company’s EBITDA to decline in 2016 below the level of around $1.7 billion that Moody’s estimates for 2015, its free cash flow will likely remain solidly positive, supported by balanced capex which the company expects to be in the range of $400-$600 million, including maintenance capex of up to $250 million annually, financed by internally generated cash.
In addition to robust financial metrics, sustainable positive free cash flow generation and conservative financial policy, MMK’s Ba2 rating takes into account the company’s (1) low-cost position and high profitability owing to currently low iron ore and coking coal prices, material rouble depreciation, operational enhancements and proximity to core suppliers and domestic customers; (2) diversified product mix and strong market share for high value-added flat steel products in Russia; (3) substantial share of export sales and strong competitive position in international markets; and (4) solid liquidity, Moody’s stated in its today’s report.
According to Moody’s, MMK’s positive rating outlook reflects the positive trajectory of the company’s financial metrics in the past two years, and leverage in particular. While Moody’s expects that the company’s earnings will decline in 2016 amid the weakening demand for steel in the Russian market and pricing pressure in export markets, MMK should be able to sustain strong financial metrics for the rating.
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 2014, the company produced 13.0 million tonnes of crude steel and 12.2 million tonnes of commercial steel products. MMK Group had sales in 2014 of USD 7,952 million and EBITDA of USD 1,607 million.
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