London, 29 October 2021 -- Moody's Investors Service ("Moody's") has today
affirmed the Baa3 issuer rating of Sibur Holding, PJSC (Sibur) and
the Baa3 backed senior unsecured ratings of Sibur Securities DAC.
Concurrently, the agency upgraded Nizhnekamskneftekhim PJSC (NKNK,
Ba3 stable)'s corporate family rating (CFR) to Ba3 from B1 and probability
of default rating (PDR) to Ba3-PD from B1-PD. The
outlook on Sibur Holding, PJSC and Sibur Securities DAC remains
stable. Nizhnekamskneftekhim PJSC's outlook has changed to
stable from positive.
The action follows completion of acquisition by Sibur of certain assets
of JSC TAIF, including NKNK. Non-cash settlement
of the deal involved funding of the acquisition of 50% plus one
share of JSC TAIF with new issuance of Sibur's shares (17.625%
of existing charter capital) that were transferred to JSC TAIF's
existing shareholders, granting them a 15% stake in the combined
entity. The remaining 50% stake in JSC TAIF involves cash
consideration of around $3 billion to be paid over 2022-32.
The cash part of the transaction has been funded via issuance of $3
billion of bonds maturing in 2022-32 that was privately placed
with JSC TAIF shareholders. As a result of this transaction Sibur,
via JSC TAIF, now holds 83% NKNK's ordinary shares (or 73%
of the company's total equity).
RATIONALE FOR AFFIRMATION OF SIBUR'S RATINGS
Sibur will consolidate JSC TAIF assets starting from the fourth quarter
of 2021. The group's 2022 revenue will increase by nearly
90% compared with 2020 driven by consolidation of petrochemical
companies NKNK and PJSC Kazanorgsintez (KOS), as well as increased
sales volumes and somewhat stronger prices than in 2020. Sibur
expects its profitability to remain one of the highest in the sector,
with EBITDA margin of around 40%, supported by low feedstock
cost base. Feedstock synergies and product mix diversification,
as well as the increased scale of operations, will support the joint
company's business profile and market positioning. Moody's
expects that the combined company's leverage measured by Moody's
adjusted debt/EBITDA will remain below 2.5x in 2022-23 and
liquidity will remain strong across the group, despite the newly
consolidated entities being at peak investment phase. This includes
the agency's estimate for proportionate consolidation (60%)
of debt to be raised by the joint venture of Sibur and Sinopec Group Overseas
Development (2018) Ltd (A1 stable), established to build Amur Gas
Chemicals Complex (AGCC) in Russia's Far East by the end of 2024.
AGCC project will comprise ethane & LPG cracker with ethylene capacity
of 2.2-2.3 mt per annum and polyolefins capacity
of 2.7 mt per annum (2.3 mt of PE and 0.4 mt of PP)
and will use feedstock from Amur gas processing plant (AGPP) of Gazprom,
PJSC (Gazprom, Baa2 stable). The project is estimated at
just below $10 billion and will be 85% funded with new debt.
The company expects to account for AGCC by equity method, given
the contractual absence of control, and will only provide a debt
service undertaking that will likely be classified as non-financial
by the auditors. Moody's will however assess the rationale
for adding a proportion of JV debt to Sibur's balance sheet, taking
into account the JV ownership and control structure, the project's
importance for the overall Far East infrastructure development programme
sponsored by the Russian government, the risk of Sibur's having
to step in as support provider to AGCC, and peer transactions.
Completion risks will be mitigated by the company's proven track record
of successful implementation and timely launch of its Tobolsk and Zapsib
RATIONALE FOR UPGRADE OF NKNK'S RATING TO Ba3
Today's action primarily reflects Moody's view that the merger
with Sibur will enhance NKNK's credit profile via the integration
between the two businesses and credit support from a stronger parent.
An upgrade is also supported by the improvement in NKNK's performance
in 2021 compared with the agency's expectations; the company's
revenue for the full year will increase around 50% compared with
2020, and EBITDA margin will rise to around 24% from around
19% in 2019-20. On a standalone basis, NKNK's
credit profile will however remain vulnerable to the volatility in the
petrochemical market because of high leverage during the active construction
stage of its USD2.5 billion ethylene and polymer project to be
completed in 2024. The facility will double NKNK's basic
polymer production capacity, it should increase its revenue by a
third and support profitability as the company will capture a larger share
of the value chain by producing its own ethylene. The debt-funded
project will push NKNK's leverage, measured as net debt/EBITDA,
to 3.5x in 2022 and well above 5x in 2023, with deleveraging
only starting around 2024 when the project comes on stream.
Moody's notes, that ethylene plant and power generation unit
are funded with EUR1 billion Deutsche Bank AG (A2 positive)-led
syndicated facility under the Hermes export credit agency cover and with
a EUR150 million Alfa-bank (Baa3 stable) loan. However,
no funding has yet been arranged for the polymer plant and construction
works, with the company being at final negotiation phase with a
number of financial institutions. NKNK expects to secure debt funding
in early 2022, as per project implementation schedule.
The agency expects that being part of a larger Sibur group will support
timely funding at NKNK and efficient project implementation without major
delays and cost overruns. Moody's also notes that Sibur publicly
announced that it will support completion of projects that have already
started at NKNK.
Moody's understands, that over time NKNK will become fully
integrated in Sibur group, with key investment and financing decisions
taken at the holding level. During a certain period the entities
will continue to operate on a quasi ring-fenced basis and will
remain separate legal entities until they complete their pre-funded
investment projects. However, Sibur's policies on consolidated
leverage of net debt/EBITDA below 2.0x, and a requirement
to maintain committed backup credit facilities will likely be applied
across the group, improving the company's financial discipline
and liquidity management.
Moody's expects NKNK to potentially benefit from qualifying as one
of Sibur's material subsidiaries under the 10% asset and
revenue test for cross-acceleration provisions in Sibur's
debt documentation, and some other forms of implicit and explicit
parent support that will improve their cost of funding and overall financial
and liquidity profiles.
Sibur group (on a consolidated basis) has excellent liquidity for the
next 12-18 months. We expect the company to generate around
RUB490 billion of funds from operations in Q4 2021-Q1 2023.
Along with the cash balance of more than RUB70 billion and available committed
revolving credit facilities of RUB35 billion as of the end of September
2021, it will be sufficient to cover capital expenditures of RUB264
billion, debt repayments of RUB77 billion (including the new bond
funding cash consideration to TAIF shareholders), as well as envisaged
dividend payments in the same period.
NKNK has a benign debt maturity profile with substantial repayments only
starting beyond 2024, following the launch of its large-scale
olefin project. According to Moody's estimates, NKNK's liquidity
is supported by around RUB19 billion cash balances as of the end of September
2021. Moody's notes, that the company is currently in compliance
with its tightest net debt/EBITDA covenant, which is embedded in
its debt documentation and is set at 3.5x for 2020-22,
however, a rise in project-related leverage in 2023 would
call for covenant renegotiation/waiver for that year, a development
that Moody's will monitor. The agency expects NKNK to manage
its liquidity, including the pace of investments and cash balances,
in a prudent way to avoid breach of the covenant that would constrain
project-related disbursements and, in the worst case,
trigger the acceleration of outstanding debt, in part or in full.
In Moody's view, NKNK as part of the larger Sibur group will be
more favourably positioned to negotiate bank funding for the second phase
of its investment project, as well as access capital markets.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on Sibur's ratings reflects our view that the
rating remains adequately positioned in its current category.
The stable outlook on NKNK's ratings reflects Moody's view,
that following the transaction, the company's business profile
has improved, however, further positive rating migration would
be subject to the pace of integration and standalone performance improvements.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating of Sibur could be upgraded, if the company demonstrated
1) deleveraging towards debt/EBITDA of 2.0x on a sustained basis;
and 2) retained cash flow/debt improving to 30%, while maintaining
healthy liquidity profile on a sustained basis. Conversely,
an increase in leverage towards debt/EBITDA of 3.0x or retained
cash flow/debt weakening to 15% on a sustained basis, and
deterioration in liquidity could lead to a downgrade of the ratings.
Downgrade of Russia's sovereign rating would also have a negative effect
on Sibur's ratings.
NKNK's rating could be upgraded if the company demonstrated conversion
of investment in the large olefin project into cash flow, and improvement
in key financial metrics including leverage and coverage consistent with
a mid-Ba category. Evidence of integration in Sibur's
business and financial model could, over time, lead to ratings
conversion. Negative pressure on NKNK's rating would develop
if it continued to operate on a standalone basis, and its credit
quality deteriorated beyond our expectations for the current rating category,
with debt/EBITDA remaining above 5.5x and RCF/debt below 10%
beyond 2024; and deteriorating liquidity profile (including covenants
The principal methodology used in these ratings was Chemical Industry
published in March 2019 and available at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Sibur Holding, PJSC (Sibur) is a vertically integrated petrochemical
company operating in Russia. Leonid Mikhelson is the major shareholder
with of shares (30.6%), followed by Gennady Timchenko
with 14.5%. China Petroleum and Chemical Corporation
(A1 stable) and China's (Government of China, A1 stable) Silk
Road Fund hold 8.5% each in Sibur. SOGAZ JSC holds
10.6%, TAIF shareholders 15%, and the
company's current and former management hold the remaining 12.3%.
In the 12 months ended 30 September 2021, Sibur generated revenue
and reported EBITDA of RUB752 billion and RUB334 billion, respectively
Nizhnekamskneftekhim PJSC (NKNK) is a major Russian petrochemical company
located in the Republic of Tatarstan. NKNK's eight core production
units produce rubber, plastics, monomers and other petrochemicals,
and they are located on two adjacent production sites that have centralised
transportation, energy and telecommunication infrastructure.
In the 12 months that ended 30 June 2021, the company reported sales
of RUB205 billion and adjusted EBITDA of RUB49 billion. Of NKNK's
ordinary shares, 83% (or 73% of the company's total
equity) are held by Sibur via JSC TAIF, the rest of the equity is
in free float. The Tatarstan government retains the golden share
of NKNK, which gives the government veto power over certain major
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
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 "SIBUR and TAIF finalise terms of merger",
24 September 2021
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Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
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