RPT-Fitch: Rouble Fall Will Benefit Miners More Than Oil Exporters

Tue Feb 4, 2014 7:24am EST

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Feb 4 (Reuters) - (The following statement was released by the rating agency)

Among Russia's major exporters, metals and mining companies are likely to benefit more from the recent depreciation of the rouble than oil and gas companies, Fitch Ratings says. For both sectors, the currency's limited decline will strengthen earnings and support their credit profile, but ratings upgrades are unlikely without indications that the currency has settled at a new lower level.

The rouble has depreciated by 8% against the US dollar since the beginning of the year and is down 17% from the end of 2012. Depreciation of a local currency is generally good news for an exporter, as it leads to a relative fall in local-currency production costs and overheads, while foreign-currency revenues remain steady, resulting in higher cash flows and profit margins. For a typical Russian metals and mining company like Severstal or MMK, we estimate that a 5% fall in the rouble should result in EBITDA growth of between 10% and 15%. This sensitivity analysis shows that the overall effect on metals and mining exporters may be significant and could enhance their international competitiveness.

The effect on Russian oil exporters is less pronounced due to taxation and hence is less likely to result in positive rating actions in the future. At the Brent Crude price of USD100 a barrel, around 70% of export revenues of oil producers are taken by the state through the export duty and mineral extraction tax, both of which factor in the exchange rate. However, a limited effect will still be seen as production and a substantial part of administration costs are mainly rouble-denominated. We estimate that on average a 5% rouble depreciation may lift the EBITDA of Russian oil companies by 5%-10%.

The main factors behind the rouble's decline include investors' reaction to the tightening of US monetary policy and their anticipation of the Russian central bank's policy stance and planned switch to a fully flexible exchange rate regime. However, the central bank has sufficient ammunition to maintain the current pace of intervention if needed. As long as oil prices remain high, the depreciation is unlikely to follow the 2009 pattern, when the Russian currency collapsed by almost 30% year-on-year, as the price of crude remains a key factor determining the rouble exchange rate.

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