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Announcement:

Moody's: Sibur's Receipt of $1.75 Billion Financing for ZapSibNeftekhim Project from Russia's National Wealth Fund Is Credit Positive

10 Dec 2015

London, 10 December 2015 -- On 9 December 2015, Sibur Holding, PJSC (Sibur, Ba1 stable) reported that it had received a 15-year $1.75 billion debt financing for its largest ZapSibNeftekhim investment project from Russia's National Wealth Fund (NWF). The deal was supplemented by a 5-year loan facility provided for the same project by a consortium of investors, including the Russian Direct Investment Fund (RDIF), and a few Middle Eastern sovereign wealth funds.

The deals are credit positive for Sibur, as they complete external funding requirement for the ZapSibNeftekhim project, allowing Sibur to proceed with project implementation as planned. Once completed, the additional capacity will make Sibur Russia's (Ba1 stable) largest polymer producer, which in turn will help improve its profitability and enhance the export potential of its products.

The $1.75 billion in NWF funding were received through the placement of a 15-year domestic bond issued by ZapSibNeftekhim, LLC (a subsidiary of Sibur, unrated), in favor of the Russian Ministry of Finance. The money, however, was received in roubles at an exchange rate of RUB67.8 per $1 on the day of the receipt, in line with NWF's rules and will need to be paid back as a rouble equivalent of $1.75 billion at the exchange rate on the day of repayment in 2030.

As such, the arrangement increases Sibur's exposure to the foreign exchange risk. However, this risk is somewhat mitigated by Sibur's significant export revenues in US dollars (50% of total revenue) and its plan to accelerate rouble investments, to reduce the risk of potential loss of rouble value due to continued significant currency volatility. The long-term, low-cost nature of the NWF funding is also supportive for Sibur's debt burden profile.

The recently raised $1.75 billion of project financing from the NWF accounts for around 18% of the total $9.5 billion project cost, and practically completes all financing requirements. Other debt financing for the project includes previously signed credit facilities with international banks and the loan from RDIF and its co-investors. Debt financing now comprises around half of the total project cost, with the other half funded by Sibur. As of end-September 2015, Sibur had already invested around $1 billion (11% of the project cost) of its own funds in ZapSibNeftekhim.

ZapSibNeftekhim is a greenfield production facility for deep hydrocarbon to polyolefin processing, and is located in Russia's Western Siberia. The project started in late 2014, and Sibur plans to complete the construction and launch the facility in 2020 and ramp up production through the following year. Once the facility becomes fully operational in 2021, ZapSibNeftekhim will almost triple Sibur's basic polymer production capacity to 3 million tonnes, increase revenue by 25%-30% to around $11 billion, extend the company's product mix, and improve profitability.

However, until the project starts generating cash flow in 2020, it will continue to exert significant pressure on Sibur's financial profile. Sibur's 4.1x adjusted debt/EBITDA at end-2014 was high for its Ba1 rating owing to some one-off developments. The NWF deal is sizable and, in contrast to agreed credit facilities, cannot be drawn gradually, thereby immediately increasing the company's debt and hence its leverage based on total debt. As a result, the company's adjusted leverage -- as measured by adjusted debt/EBITDA -- may still slightly exceed 3.0x at end-2015, but should decline towards 2.0x, which is our rating guidance, over the next 12-24 months. This deviation from our previous expectations will be within 10%-12%, which we see as tolerable, given the company's strong cash flow generation, with a high coverage of debt by retained cash flow (around 40% compared to our 20% rating guidance) and adequate liquidity. Sibur's competitive exports, sustainably high EBITDA margins (30% on average on an adjusted basis) and strong operating cash flow ($2.5 billion in dollar terms in 2014) combined with some investment flexibility and conservative financial policy should mitigate both, investment pressure and the weak fundamentals of domestic market.

The funding from the NWF, RDIF and its co-investors mark a milestone in the execution of ZapSibNeftekhim, because the deals reflect the recognition by the Russian government of ZapSibNeftekhim's importance to the domestic economy, as well as the commitment of both the government and reputable international investors.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Ekaterina Botvinova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group

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Moody's: Sibur's Receipt of $1.75 Billion Financing for ZapSibNeftekhim Project from Russia's National Wealth Fund Is Credit Positive
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