TEXT-Fitch affirms Evraz Group at 'BB-'
Oct 8 - Fitch Ratings has affirmed Evraz Group S.A.'s (Evraz) foreign currency (FC) Long-Term Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook, Short-term FC IDR at 'B' and senior unsecured rating at 'BB-'. The affirmation follows Evraz plc's purchase of a 41% indirect stake in OAO Raspadskaya ('B+'/Stable) through the purchase of a 50% stake in Corber Enterprises Ltd (see 'Fitch Affirms Raspadskaya at 'B+'; Outlook Stable' dated 8 October 2012 at www.fitchratings.com). As a result of the transaction, Evraz plc will become a major shareholder of OAO Raspadskaya with an 82% stake. Control over the coking coal mining company will allow Evraz plc to increase its self-sufficiency in coking coal, one of key raw materials for steel production. This is in line with Evraz plc's strategy of strengthening its mining division. The agency does not expect the transaction to materially affect Evraz plc's consolidated leverage, as the deal is mostly non-cash. Adroliv Investments Ltd, the seller of Corber Enterprises Ltd's shares, will receive approximately 11.1% of Evraz plc's shares after execution of warrants, cash payment equals to USD200m. Evraz Group S.A.'s credit metrics will not be affected by the transaction. Evraz's funds from operations (FFO) adjusted gross leverage decreased to 2.3x at end-2011 compared with 3.0x at end-2010. Fitch expects FFO adjusted gross leverage to increase to 3.3x-3.5x by end-2012 and deleveraging to 2.0x-2.2x by end-2014. The ratings are supported by Fitch's expectations of positive free cash flow generation over the medium term. Evraz's ratings remain constrained by its large Russian operational base, which exposes it to higher than average political, business and regulatory risks. WHAT COULD TRIGGER A RATING ACTION? Positive: Future developments that may, individually or collectively, lead to positive rating action include - EBITDAR margin above 20% on a sustained basis - Deleveraging to FFO adjusted gross leverage below 2.0x on a sustained basis Negative: Future developments that may, individually or collectively, lead to negative rating action include - EBITDAR margin below 15% on a sustained basis - FFO adjusted gross leverage above 3.5x on a sustained basis Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria 'Corporate Rating Methodology', dated 08 August 2012, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology
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