TEXT-Fitch affirms SIBUR at 'BB+'; rates proposed notes 'BB+(EXP)'
Jan 17 - Fitch Ratings has affirmed Russia-based JSC SIBUR Holding's (OAO SIBUR Holding, SIBUR) Long-term Issuer Default Ratings (IDR) at 'BB+' and its Short-term IDR at 'B'. The Outlook on the Long-term IDR is Stable. The agency has simultaneously assigned SIBUR Securities Limited's proposed issue of guaranteed notes (the Notes) an expected foreign currency senior unsecured rating of 'BB+(EXP)'.
The Notes' final rating is contingent on the receipt of final documentation conforming to information already received and further details regarding the amount and tenor of the Notes.
- SIBUR Borrower/Guarantor of the Notes
SIBUR Securities Limited (the Issuer), the issuer of the bonds, is an Ireland-based private limited liability company established for this sole purpose. The notes will benefit from an unconditional and irrevocable guarantee from OAO SIBUR Holding (the Guarantor). The guarantee will be a senior unsecured obligation of OAO SIBUR Holding and will rank equally in right of payment with all its existing and future senior unsecured and unsubordinated obligations.
- SIBUR's Senior Unsecured Notes
Proceeds will be used for short-term debt refinancing and general corporate purposes. Covenants apply to the issuer, the Guarantor and certain subsidiaries and include a negative pledge (with permitted liens) and limitation on incurrence of indebtedness with a total proforma debt-to-consolidated EBITDA ceiling of 3.5:1. Events of default include cross default or cross acceleration to the debt of the Issuer, the Guarantor or any material subsidiary with a USD50m threshold.
- 2012 in Line With Base Case
SIBUR's results for 9M12 are roughly in line with Fitch's base rating case with top line growth of 9.6%, reflecting single digit volumes growth, softer demand growth across product portfolio and the sale of the non-core businesses in late 2011. Profitability was aided by the latter and margin erosion was limited with EBITDA margin at 31.8% (Fitch calculation), from 35.8% in 9M11. Under the base case, high capex and dividend levels translate into negative free cash flow (FCF). The completion of the Tobolsk Polymer project is expected in 2013. The 500,000 tonnes of polypropylene capacity will add value to the group's existing propane production.
- Adequate Liquidity
Liquidity was adequate at end-Q312 with cash balances of RUR9.2bn and undrawn committed general corporate purpose facilities of RUR24.2bn against maturing short-term debt of RUB37bn. At end-Q312 gross debt was broadly flat at RUR81bn (FYE11: RUR83bn). Fitch expects net funds from operations (FFO) leverage to peak in 2012 at 1.5x with a gradual decrease from 2013 onwards.
- Peak Capex
Fitch's base rating case assumes peak capex spending in 2012 with funds earmarked for the completion of the Tobolsk complex, the transhipment facility at Ust-Luga, feedstock infrastructure projects and the group's contribution towards various joint ventures. 9M12 capex was RUB48bn, up from RUB33bn a year ago. Other cash requirements in 2012 include dividend distributions of RUR22bn for FYE11 and RUR7bn for H112, in line with the group's policy (25% of net income). FCF is expected to be negative in 2012 due to the high investment levels. The ratings assume that OAO SIBUR Holding will continue to access long-term funding to refinance upcoming maturities and finance its expansion plans.
- Non-Core Assets Sold
Cash flow generation benefited from the disposal of the non-core fertiliser and tyre businesses in December 2011 for RUB47bn in aggregate. These accounted for 28% and 13% of revenues and EBITDA in 2011 (14% margin), respectively, and their sale should translate into higher margins for SIBUR's continuing operations.
- Competitive Cost Advantage
SIBUR's ratings are supported by its leading position in the Russian petrochemicals sector, diversified portfolio and access to associated petroleum gas (APG) which ensures low costs versus most international peers and underpins its strong operational cash flow generation over the cycle.
- Industry and Country Risks
SIBUR is exposed to the inherent risks of the petrochemical industry - price volatility and demand cyclicality. The ratings are also constrained by the legal and regulatory risks associated with Russia, where its key assets are located.
RATING SENSITIVITY GUIDANCE:
Positive: Future developments that could lead to positive rating actions include:
- Further operational improvements and capacity expansion resulting in enhanced scale and product diversification and/or portfolio mix
- FFO net adjusted leverage at, or below 1.5x through the cycle
- Sustained positive FCF generation
- Established corporate governance track record from the new shareholders
Negative: Future developments that could lead to negative rating action include:
- Material deterioration in the company's cost position or access to low-cost associated petroleum gas
- Sustained negative FCF generation
- Aggressive financial strategy resulting in an increased financial burden and FFO adjusted net leverage sustained above 2.0x
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