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I AGREE
31 Jan 2011
Moscow, January 31, 2011 -- Moody's has today assigned a B2 corporate family to OAO Koks,
a Russian producer of coking coal, coke and cast iron. Concurrently
Moody's Interfax Rating Agency has assigned a Baa1.ru national
scale rating to the company.
Moscow-based Moody's Interfax is majority-owned by
Moody's, a leading global rating agency. The outlook
on the ratings is stable. This is the first time that Moody's
rates the company.
RATINGS RATIONALE
The rating is supported by (i) Koks' strong historical operating
performance with EBITDA margins of around 30% until 2008 and moving
in that direction again from 2010, (ii) moderate historical expected
leverage (Moody's adjusted debt/EBITDA) of below 3.0x in
2010, (iii) the group's good prospects resulting from a currently
positive pricing environment for its products, and (iv) a planned
rights issue which should help to reduce leverage to below 2.5x
Moody's adjusted debt/ EBITDA in 2011.
Negatively on the rating weighs (i) Koks' relatively weak business
profile with high asset concentration and limited geographical diversification,
(ii) the evolving structure of the overall group with trading activities
consolidated only step by step, (iii) the company's low resilience
to the market downturn in 2009, (iv) the risk that the loss-making
unconsolidated entities need to be supported by Koks, (v) the limited
self-sufficiency in coking coal and iron ore which, at times
of rising coal prices, could lead to margin pressure, limited
and requires high capital expenditure in the future as well as (vi) risks
related to the overall economic and political situation for a company
operating in Russia.
Koks operates three coal mines in the Kemerovo region. These mines
are relatively small overall accounting for 2.2m tons p.a.
with also relatively limited remaining reserve life. Coal output
is used by Koks' coking plant to produce coke which in turn is used
to a large extent to produce cast iron. Coke and cast iron accounted
for over 87% of sales in 2009 which is a sign of a relatively limited
product diversification and could lead to a higher than average volatility
compared to other companies in the sector.
The rating positively incorporates Koks' solid track record until
2008 where the company generated healthy EBITDA margins and good cash
flow leading to a Moody's adjusted debt/ EBITDA of 1.8x and
a RCF/ net debt of 41%. At the same time we note the group's
low resilience in the downturn 2009 where declining volumes besides pricing
pressure deteriorated leverage metrics to 4.9x debt/ EBITDA and
3.0% RCF/ net debt despite the deconsolidation of the Slovenian
entity and the nickel division. Going forward, Moody's
takes comfort that leverage will revert back towards below 2.5x
debt/ EBITDA and a RCF/ net debt above 20% under the assumption
of no significant price backslides, no significant debt financed
development projects and proceeds from the recently announced sale of
treasury shares of at least USD 160m. If the IPO is not successful,
or if the valuation of Koks will be significantly below the published
amounts, the rating could come under downward pressure, as
the lack of proceeds from the IPO would lead to a worsening leverage as
well as relatively tight short term liquidity situation.
For the assignment of Koks' rating Moody's uses its Global
Steel methodology. The methodology ratios are based on a 3-year
average except for debt/ book capitalization and business profile which
are measured on a point-in-time basis. The outcome
from the methodology grid is a B1. The actually assigned rating
of B2 differs from the grid outcome since it takes into account additional
factors such as Koks' complex and evolving group structure and country
specific risks.
For an upgrade Moody's would require Koks' leverage metrics
to move sustainably below 2.0x debt/ EBITDA. Furthermore,
the corporate structure would have to be more transparent with the full
consolidation of the company's trading entity, and the short
term liquidity situation would have to be improved considerably.
An increase of leverage above 3.0x debt/ EBITDA would put pressure
on the rating. Any worsening of the short term liquidity situation
would also lead to negative rating pressure.
The principal methodologies used in this rating were "Global Steel
Industry" published in January 2009, and "Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA" published in June
2009.
OAO Koks is a Russia based producer of coking coal, coke,
iron ore and cast iron as well as other assets. The group comprises
seven mining entities with total reserves of 337 million tons per December
2009. In 2009 Koks had sales of RUB 29 billion and an annual output
of around 8.5 million tons.
Owner of Koks is the Zubitsky family who holds a 93.7% stake
in the company. Besides Koks the family has a significant stake
in SIJ group, a Slovenian steel company which was loss-making
in the last year and owns a Nickel production business that was previously
owned by Koks.
Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are
intended as relative measures of creditworthiness among debt issues and
issuers within a country, enabling market participants to better
differentiate relative risks. NSRs differ from Moody's global scale
ratings in that they are not globally comparable with the full universe
of Moody's rated entities, but only with NSRs for other rated debt
issues and issuers within the same country. NSRs are designated
by a ".nn" country modifier signifying the relevant
country, as in ".ru" for Russia. For further
information on Moody's approach to national scale ratings, please
refer to Moody's Rating Implementation Guidance published in August 2010
entitled "Mapping Moody's National Scale Ratings to Global Scale
Ratings."
ABOUT MOODY'S AND MOODY'S INTERFAX
Moody's Interfax Rating Agency (MIRA) specializes in credit risk analysis
in Russia. MIRA is controlled by Moody's Investors Service,
a leading provider of credit ratings, research and analysis covering
debt instruments and securities in the global capital markets.
Moody's Investors Service is a subsidiary of Moody's Corporation (NYSE:
MCO).
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Moscow
Larissa Loznova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
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Moody's Eastern Europe LLC
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Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091
Moody's assigns B2 corporate family rating to OAO Koks, outlook stable
No Related Data.
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Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. 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(“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
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