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Rating Action:

Moody's assigns B1 corporate family rating to Acron. Outlook stable.

21 Jul 2010

London, 21 July 2010 -- Moody's Investors Service has today assigned a B1 corporate family rating to JSC ACRON ("Acron" or the "Company"), one of the leading producers of nitrogen fertilisers with global NPK capacity of 2.2 million tonnes. The outlook is stable.

Based in Russia, JSC ACRON is the operating and holding company of a group of chemical companies engaged in the manufacture and sale of mineral fertilisers. In 2009, Acron reported revenues of RUB 37.5 billion.

Since its privatisation in 1992-1993, Acron has focused on strengthening its operating base through several bolt-on acquisitions, including the purchases of controlling stakes in JSC Dorogobuzh and Hongri Acron, a leading NPK producer in China, as well as the more recent acquisitions of port and transhipment assets in Russia and the acquisition of licences for development of mineral fertiliser deposits in Russia and Canada in 2008. Acron also supports its growth by the expansion and modernisation of the existing production capacities, the development of proprietary logistics, sales and marketing operations in Russia, and finally through the on-going development of several deposits for mineral fertilisers in Russia.

The company pursues a strategy focused on profitable growth. Acron enjoys strong positions in the large and fast growing domestic and Chinese markets, that are open to only limited import pressures at present. To fully capitalise on the market opportunities, Acron is focused on maximising its competitive advantage offered by proximity to areas with abundant natural gas resources, competitive scale through well-maintained facilities and the on-going development of own mineral base that should support the company's market positions in the medium term.

As a majority privately-held group with robust revenue model, Acron is funding the on-going expansion through reinvestment of its operating cash flow as well as through borrowings. During the build-out period to 2012, Acron will be relying on funding made available under several facilities by leading local banks. We note that the company maintains a considerable degree of flexibility in managing the development and investment planned until 2012. The company has also broadened its access to capital by obtaining a listing for the holding company on MICEX and RTS in 2007 and on the LSE in 2008 and a domestic listing for one of its key Russian subsidiaries, JSC Dorogobuzh.

The B1 corporate family rating and our guidance for the rating positioning, therefore, reflect the expectation that the company will continue to execute its investment plan, while maintaining an elevated level of debt and strong liquidity position during the investment period to 2012. The rating also anticipates a considerable improvement in the financial profile of the group from 2012, following the conclusion of the first phase of the investment programme and associated improvement in the profitability and cash flow generation.

The B1 corporate family rating also reflects: (a) Acron's competitive global cost position, supported by lower raw material costs in Russia, good scale of the key production facilities and a low fixed costs component, typical for nitrogen fertiliser producers; (b) Acron's broad range of product, with focus and market leadership in more-value-added complex nitrogen fertilisers; (c) the limited degree of competition in its key markets, with high barriers to entry to the Russian market (dominated by domestic low-cost producers) and Chinese market (open to domestic producers only), supported by its established own distribution and marketing network in Russia and China; (d) the expectation that the current investment will significantly boost profitability and improve the quality of revenues (through vertical integration) from 2012; (e) the company's conservative management and prudent financial policy, as well as a considerable flexibility in managing the CAPEX programme; and finally (f) our positive view on long term fundamentals in agri-chemicals.

Our assessment of the risks also reflects (a) the modest size and limited diversification of the group, when compared to the global peer group, nevertheless sufficient for realising economies of scale and effective regional competition; (b) the on-going expansion in capacity and development of the own mineral base and the associated investment commitments suggesting negative FCF until 2012; (c) seasonality and cyclicality of the fertiliser business, typical for the global peer group; (d) risks associated with the concentrated ownership structure, mitigated by the presence of the independent directors and compliance with the LSE listing rules; and (e) potential for government regulation (through price caps or export quotas), typical for this segment.

The stable outlook on the rating reflects our positive view of the current dynamics on the Russian and Chinese markets that should continue to support steady improvement in Acron's operating performance over the next 12-18 months. The stable outlook also reflects the expectation of strong execution of the investment plan and proactive liquidity and refinancing management during the build-out phase.

The following ratings are assigned for the first time as part of this rating action:

JSC Acron

- Corporate Family Rating: B1

- Probability of Default Rating: B1

For the assignment of this rating, Moody's has used its methodology for the Global Chemical Industry, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Based in Russia, JSC ACRON is the operating and holding company of a group of chemical companies engaged in the manufacture and sale of mineral fertilisers. In 2009, Acron reported revenues of RUB 37.5 billion.

London
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Elena Nadtotchi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns B1 corporate family rating to Acron. Outlook stable.
No Related Data.
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