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Rating Action:

Moody's assigns Ba3 rating to Metalloinvest, stable outlook

30 Jul 2010

Frankfurt, July 30, 2010 -- Moody's Investors Service has today assigned a Ba3 corporate family rating ("CFR") to Metalloinvest ("the company") and a Ba3 Probability of Default Rating. Concurrently, Moody's Interfax Rating Agency has assigned an Aa3.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.

The CFR of Ba3 reflects Metalloinvest's proven iron ore production capacity, its long-life reserve base and its good historic profitability as measured by average 3-year EBIT margin at 24.3 %. Metalloinvest also benefits from its integrated steel business model with a large share of niche and value-added products. Also positive is the ability of the company in 2009 to generate free cash-flow. Weighing negatively on the rating is the high debt level and leverage at the end of the year 2009, largely induced by the recent economic crisis, and a weak liquidity profile depending on operating cash flow generation.

Moody's also considers that the company is a low cost producer of hot briquette iron (HBI) supported by its own iron ore reserves and the general low input costs that a company that is operating in Russia can benefit from. In addition the recent recovery in commodity prices has helped strongly improving Metalloinvest's performance in 2010. The geographical location with close proximity to transportation routes and access to the fast growing markets in Russia, CIS and Eastern Europe was also assessed as a positive factor. Furthermore Moody's also understands that the company is engaged in the implementation of an investment program which is aimed at enhancing the quality and competitiveness of the company's core production, thereby possibly helping Metalloinvest to expand its market share of high added value iron ore products and support its cash flow going forward.

On the other hand the agency considers that Metalloinvest has limited business diversification as all its core iron ore production assets are located in the same region in Russia, that it is faced with a high exposure to one mineral - iron ore - and the dependence of the financial performance on the steel cycle, that its export potential is limited due to the land-lock location of mines which could slow down further growth of its mining business. The rating also incorporates the expectation that the management will continue to focus on debt reduction and organic growth rather than on high shareholder returns and large debt-financed acquisitions.

The Company's financial profile has been materially affected by the crisis situation in 2008 and 2009 with a high level of debt (USD 7.1 billion reported debt at the end of 2008, USD 5.7 billion at the end of 2009 and as per management accounts per end of June 2010 USD 4.4 billion). Moody's estimates that the company has to repay USD 1.3 billion of debt in the next four quarters which largely depends on the expected cash flow generation and the company also has access to some committed credit facilities which contain financial covenants (though a number of these facilities have currently covenant holiday until end of 1H 2011).

The stable outlook indicates Moody's expectations that the 2010 performance of the company should support the current rating and would demonstrate positive trends in financial metrics especially reduction in leverage and improved cash flow generation. For an upgrade Moody's would like to see the debt/EBITDA ratio not exceeding 2.0x and FCF/Debt becoming consistently over 20%. The stable outlook also incorporates the expectation that the company's leverage will converge towards 2.5x (based on Moody's adjusted figures) and (CFO-dividends)/debt will move towards 30% in the next 18 months. It also incorporates the expectation that short term liquidity will remain sufficient going forward. Failure to achieve these ratios would put downward pressure on the rating.

The principal methodology used in rating Metalloinvest was Global Mining Industry, May 2009 (116843), 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 Metalloinvest can also be found in the Rating Methodologies sub-directory on Moody's website.

In 2009 the Group produced app. 32 million t of ore and concentrate, 19 million t of pellets, 4.6 million t of HBI/DRI and 6.5 million t of crude steel. The group reported USD 4.8 billion in revenue (49% decrease Y-o-Y) and USD 0.8 billion in EBITDA. The company has the world's 2-nd largest iron ore reserve base and is the 7th largest supplier of ore globally. In addition, the is the 5th largest steel producer in Russia.

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's assigns Ba3 rating to Metalloinvest, stable outlook
No Related Data.
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